Loan restructuring is a formal relief mechanism where a lender modifies your existing loan terms. They can extend your repayment tenure, lower your EMI amounts, or temporarily reduce interest rates. This is done to help you manage repayments during proven financial hardship like job loss, salary cuts, or medical emergencies.
The Loan Restructuring 2.0 Scheme was approved by the RBI during the COVID-19 pandemic.
Loan restructuring is an agreement between you and your bank or NBFC to modify the original loan contract without declaring an immediate default.
Unlike debt cancellation or loan settlement, loan restructuring does not waive your principal debt. Instead, your lender reorganizes your debt structure to make your monthly installments manageable based on your reduced income.
As a borrower, you may want to get your loan restructured when you face a financial emergency. Here are some reasons -
You may suddenly lose your job, or your income may change drastically, which may affect your loan repayment capability.
Sudden family emergencies might lead to extra expenses and disrupt your monthly budget.
If you have too many EMIs and are unable to repay them on time, it is a good idea to restructure your loan.
Loan restructuring is a good alternative option when you are unable to pay your EMIs on time. Here is how restructuring your loan can help -
You have the option of a reduced EMI amount or an extended repayment tenure. Both can help lower your burden of monthly EMIs.
If you don’t restructure your loan, you might end up defaulting on your payment. That can have adverse effects on your CIBIL score.
A loan restructuring can help you maintain continuity in your EMI payments. Even though the payment reduces, you are paying it every month. This saves you from penalties.
Loan restructuring can be done in the following ways -
|
Method |
How it Works |
Impact on Monthly EMI |
|---|---|---|
|
Extending the repayment tenure |
Increases the remaining loan period (e.g., from 24 months to 48 months). |
Reduces monthly EMI significantly. |
|
Modifying the interest rate |
Lowers the applicable interest rate temporarily during the hardship period. |
Decreases monthly EMI slightly. |
|
Moratorium Period |
Pauses EMI payments for 3 to 6 months during severe job loss or medical recovery. |
Temporarily reduces monthly EMI to zero. |
|
EMI Adjustment |
Lowers EMIs for the first 6 to 12 months, increasing them once income recovers. |
Provides immediate short-term relief. |
Depending on the borrower and the lender, you can opt for any one or a combination of the above methods.
The following steps are involved in the loan restructuring process -
1
Assessment of Eligibility
The lender assesses the borrower’s financial situation and eligibility based on their policies.
2
Evaluation of Restructuring Options
The lender may offer several restructuring options, and the borrower can select what best suits their financial needs.
3
Formal Application
The borrower submits a formal application for restructuring, often with supporting financial documentation.
4
Credit Impact Consideration
The lender informs the borrower of the credit score implications of restructuring.
5
Approval and Agreement
If approved, the lender provides new terms, and the borrower agrees to the modified repayment structure.
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Loan restructuring options and eligibility criteria vary by lender, so borrowers should reach out directly to their lender to understand the terms available to them. The decision to restructure a loan should be made based on a careful assessment of the borrower's financial needs and repayment capacity.
While loan restructuring helps you avoid hard default and legal notices, it carries implications for your credit record.
Your credit card or loan account will be reported to credit bureaus (CIBIL, Experian, High Mark) with a "Restructured" status tag.
Your CIBIL score will drop by 30 to 80 points following the report, as credit algorithms flag restructured accounts as elevated risk.
Lenders may hesitate to approve new unsecured credit for 12 to 24 months after restructuring
Paying every revised EMI on time builds your score back up over 18 to 24 months, eventually restoring your creditworthiness.
Loan Amount
Min ₹10
Max ₹10,000,000
Rate of Interest
Min 5%
Max 25%
Loan Tenure
5
months
Min 3 months
Max 72 months
There is no limit on how many times a loan can be restructured. However, it is severely restricted due to implications for your credit history.
When you restructure your loan, the terms of your loan will be modified. This will reduce your immediate burden of EMIs.
The disadvantages of loan restructuring include having to pay a higher amount of interest over the total tenure and a longer duration of loan tenure. Your future borrowing limits may be reduced, and your credit report and score may be negatively impacted.
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Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
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