Things to Know Before Applying for Personal Loan Restructuring
If your monthly income is disrupted due to COVID 19 and you are finding it hard to pay out your EMIs or Credit Card bills, RBI’s one time loan restructuring option could be one of the solutions to your present cash woes.
On August 6, 2020, RBI Governor announced a relief for borrowers who have been affected financially due to pandemic disruptions. The Governor proposed a scheme to help such borrowers to repay their loan according to new terms and conditions by March 2023. Herein, the RBI asked banks to announce new regulations by December 31, 2020 for restructuring loans that were standard till March 2020. The banks will then be able to implement these terms by March 2021.
In face of expiry of Moratorium on August 31, 2020, it is the right time to make the decision regarding your retail loans and credit card dues. For, your EMI will be due from next month onwards and there is no point in delaying a resolution and build up interest and late payment fee. Whether you opted for EMI deferment or wishing to reduce the EMI for some time, restructuring of loan could be one the viable options to ease the cash flows.
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Retail loans here include Personal Loan, Home Loan, Education Loan, Car Loan etc. So let’s look at some of the key factors you should keep in mind before applying for loan restructuring your Personal Loan.
1. Final guidelines will vary across lenders
The RBI has categorically said that the final guidelines for the Personal Loan Restructuring will be announced by the lenders themselves. That means, the Personal Loan Interest Rates and tenor for new loan will be determined basis the guidelines issued by the bank only. There will be no common guidelines from RBI in this regards. It would depend on your bank if it will approve further moratorium or reset the EMIs for outstanding loan amount. You should initiate the conversation with your bank, without any delay. Do not wait for the bank to initiate communication on this.
2. Know the basic eligibility norms for restructuring
Though the precise terms will be defined by your bank, eligibility for restructuring Personal Loan will involve 2 main factors:
a) Your loan account must be standard before March 31, 2020. If your account was in default previously you may not be eligible for restructuring under the Covid19 relief scheme.
b) Your monthly income must be affected by COVID19. You should be able to prove the loss of income due to pandemic to avail the benefit of loan recast. Thus salaried employees, who are facing salary cuts or loss of job, will be eligible for EMI relief. The self employed will be required to prove the loss of income or business for the same.
3. Calculate overall cost of loan and Moratorium cost
Before applying for loan restructuring you must use Loan Moratorium Calculator and assess the total cost of your loan after August 31. In any case, your bank will share the re-adjusted EMI schedule for your current loan after expiry of Moratorium. If you have opted for moratorium of 6 months, your loan would be extended for 9 months (for same EMIs). The calculator will help you determine new EMIs. Basis your repayment capacity you should go for restructuring plan. You must clearly know what instalment burden you will be able to repay.
4. Loan can be restructured for max of 2 years
Another important aspect to know is the window of 2 years that RBI has suggested for loan accounts looking for EMI relief. The restructuring of loan will be available for 2 years only. In case you have high liabilities that seek a long duration relief, you may need balance transfer or another loan for the same. The option to restructure would be ideal for anyone who can repay loan within a couple of years only. It may also be a good option to repay your Credit Card bill.
5. Missing payment will impact Credit Score
Though RBI categorically had ensured that credit rating of borrowers do not fall due to loan moratorium, missing out any payment now may severely impact your score. You should ensure that you repay the loan EMIs as decided for the new restructured loan.
Employ adequate financial discipline and reshuffle your savings and investments to ensure that you repay your debts in time and keep your CIBIL Score high. A red flag involving default can ruin your Credit Report for life. It would not be easy to get over the bad credit history. Thus, chalk out a plan to repay loans once you sign the dotted lines for a loan recast.
6. Use professional help & explore BT & other options
In case you do not find adequate financial support from your lender, consider contacting a third party loan service. A professional loan advisor can help you find out available balance transfer or debt consolidation options for chosen EMI and tenor. In many cases opting for a secured loan could be more fruitful as it ensures lower rate of interest and EMI burden.
Using professional service will help you compare all the available options and make you better equipped to take charge of your situation.
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