How Borrowers Can Restructure Personal Loans after the Moratorium Ends?

The COVID 19 pandemic has drastically affected the economy across the globe. Governments worldwide have introduced numerous mitigation measures and packages to help every individual facing a financial crisis due to long periods of lockdown and an almost standstill economic condition. India and RBI’s government has also given EMI moratorium for term loans like a personal and business loan till August 31, 2020.

What is Moratorium?

A moratorium is a relaxation period for the borrower from paying monthly EMI. The borrower has to resume paying the EMI once this relaxation ends. RBI announced the moratorium period in March 2020.

What after Moratorium?

The borrower has to start repaying his EMI when the moratorium ends. But as the situation stands now, there are still lakhs of borrowers genuinely under extreme financial stress. They are not in a position to resume loan amount repayment. It has led RBI to allow all the lenders to restructure the term loans for such clients.

Restructure of the Personal loan post moratorium

The RBI has come up with a resolution plan for such types of stressed personal loans. RBI gives you a chance to restructure your loan to suit your repayment plans. The resolution plan may change from one to the other or from lender to lender. You and your lender have to come to a mutually acceptable loan restructuring formula that would work for both. The lenders have the right to decide whom to give the loan restructuring facility and how to work it out. The lenders also have the discretion to determine whom to benefit from the loan restructuring facility and whom not to share. Your loan restructuring can take place in any of the following ways:

Revised EMI

One of the ways of restructuring the Personal loan is to revise the EMI amount. The lender has the power to reconsider the EMI amount and can change it after negotiation with the borrower. A reduction in the EMI amount automatically increases the tenure of the loan. The lender has the discretion to extend this facility to whichever customer it finds in need of such an arrangement. The borrower can use a personal loan calculator to decide on this option.

Conversion of accumulated interest into a credit facility

Another way you can restructure personal loan is by converting the moratorium period’s accumulated interest into another credit.

RBI has set down some eligibility criteria for the borrowers to claim the restructuring facility in its restructuring circular. As per these norms, the borrower whose account is not defaulting for more than 30 days before or as on March 1, 2020, shall be eligible to avail loan restructuring facility. The personal loan balance transfer to the new credit facility can help the borrower in repayment of the loan amount. 

Extension of the moratorium period

The RBI loan restructuring circular has given the lenders rights to increase or extend the moratorium period maximum by two years, after a fair assessment of the borrower’s income and other assets. It will be on one to one basis and not as a general rule for all the borrowers. 

Reduction in the interest rate

The lenders can offer relaxation in the form of reduced interest rates or can forfeit interest for some months, as per its policy and depending upon the individual case. According to its board-approved policy, the borrower must approach the lender with a request for restructuring, and the lender can extend the relaxation in the interest rate or interest amount payment. 

Points to ponder before opting for the restructuring of personal loan 

There are specific important points that the borrower and the lender have to keep in mind concerning restructuring the loan. These are:

  • The lender must decide its restructuring policy or framework latest by December 31, 2020.
  • A different lender will have a different set of policies, and hence the borrower must consult his lender to know about the best suitable solution.
  • Not all borrowers are eligible for restructuring. The borrower must confirm his eligibility and then contact the lender.
  • The borrower must be willing to provide some collateral or additional guarantee to help the lender decide on relaxation or restructuring.
  • As RBI has not come up with a standard policy that applies to all the lenders, the borrower may find a discrepancy in the restructuring policy and must accept what his lender is offering him.

Personal loan restructuring in the post moratorium period is an ongoing process. It is advisable for the borrower to personally contact the lender to put up his case and apply for the restructuring of his loan.

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