Loan Restructuring | How Private Borrowers Can Restructure Their Home, Auto, and Personal Loans: All Questions Answered

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New Delhi: The financial crisis caused by the Covid pandemic is not over yet as many people are still working with reduced salaries while some are still without a job. Based on this view, the Reserve Bank of India has allowed banks to restructure loans of those still facing financial problems to service their loans after the blanket six-month moratorium on all loans expired on August 31, 2020 is. However, there are certain conditions that must be met in order to qualify for credit restructuring.

What loans can be restructured

Pursuant to the RBI Circular, loans that have been classified as default but are not more than 30 days past due are eligible for restructuring as of March 01, 2020. It should be noted that all personal loans such as home loans, top-up loans, personal loans, car loans, education loans and gold loans can be restructured according to the scheme.

So if you feel like you can’t service your EMIs, you can contact your lender to perform a loan restructuring. However, you may be required to provide documentary evidence to support your claim that you are financially affected as a result of the pandemic as this option is available to buyers affected by the Covid-19 pandemic. You can either provide your letter of resignation or the letter/email with the pay cut due to the pandemic. Likewise, self-employed people can submit their bank statement or GST declaration to prove their loss of income due to the pandemic.

It is worth mentioning here that even if someone has not taken advantage of the moratorium, they can contact their lender to restructure if they feel they cannot service their loans.

How the restructuring will take place

According to the RBI circular, depending on your ability to repay, banks may grant an additional moratorium of up to two years or extend the outstanding term of the loan to reduce your EMI and convert the outstanding interest accrued during the moratorium into another loan. However, the actual restructuring will vary from bank to bank based on guidelines set by the board. Borrowers must apply for a loan restructuring before December 31, 2020.

Will a loan restructuring affect your credit score?

Before you are granted credit restructuring relief, your lender will most likely review your credit history to determine if there is a serious deterioration in your credit profile. If the bank feels comfortable, then only they will restructure your loan. If your bank agrees to restructure your loan, it will certainly be reflected in your credit history and negatively affect your credit score. But your credit score would certainly be better than what it would have been if your loan had become a distressed asset.

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