Difference Between Loan ‘Write-off’ & ‘Waive-off’
Loan write of Loan waive off are two important financial problem terms that you need to be familiar with. Both the terms are usually applicable in the contexts of bad loans.
Now, what is a bad loan? A bad refers to the non-performing assets of a bank or financial organization. Such assets or loans are considered bad loans as the chances of recovering the loan amount from the borrower are less, and it affects the cash flow of a bank.
Loan Write-off vs Loan Waive-off
Many people confuse between the two terms loan write-off and waive-off as both the terms primarily deal with bad loans. However, in terms of applicability, there are marked differences between loan waive-off and write-off. Listed below are some of the major differences between loan waive-off and write-off.
|Loan waive-off||Loan write-off|
|The borrower need not pay the outstanding loan amount. The individual is free from the burden of repaying the outstanding loan amount. It means complete cancellation of loan recovery by the lender.||Here, the loan will be written off by your lender to have a clean balance sheet. But it does not mean the complete cancellation of loan recovery.|
|Bank will take no legal action against the borrower. The loan stops.||The loan is not closed by the bank/lender. They will try to recover the outstanding loan amount with the help of a legal authority.|
|Here, if the borrower has given any collateral or security against the borrowed amount, it will be given back to the borrower.||Any collateral or security given against the loan by the borrower will be confiscated by the bank and auctioned if the repayment is not completed.|
|Loan waive-off is a facility provided by the government to help mainly the farmers at times of natural calamities that are beyond human intervention.||Loan write-off is a regular activity conducted by banks or financial institutions to have a clean balance sheet and minimize tax liabilities.|
|It’s a voluntary action by the lender with the support from Govt.||It’s a mandatory practice carried out by banks/ lenders.|
Loan write-off is also known as loan “charge-offs”. This means to remove a bad loan from the balance sheet of your lender and minimize its tax liabilities. It’s very important to know the differences between the above-mentioned terms so that we can handle any type of borrowing efficiently.
What is a Loan Write-off/Write-off Loan Meaning?
The term loan write-off is usually applicable in the case of bad loans or non-performing assets of a bank or financial institution. It means the reduction of the original value of an asset; the asset does not have any future value. A bad loan is usually written-off when the chances of recovering the due amount are very less.
Banks use the write-off facility to remove the non-performing assets from their balance sheet and minimize their tax liabilities. However, a bank can still recover the loans which are written-off. Basically, a loan write-off is a tool used by banks to clean up their balance sheets.
The main objective behind writing-off a bad loan is to utilize the money in its current business activities, which was initially kept aside for the borrower at the time of borrowing. Sometimes the lender may also choose to sell off bad debts to third-party collection agencies.
Loan write-off is a regular exercise carried out by banks to clean their balance sheet. However, even after a bad loan is written-off, the borrower still remains legally liable for loan repayment, and the lender may take legal action against the borrower and recover the outstanding amount.
Benefits of Loan Write-off
By writing-off a bad loan or non-performing asset, a lender can enjoy the following –
- It helps a bank or lender to set free the money originally blocked for a borrower. The money can be now utilized by banks for doing their businesses.
- Writing off a bad loan does not mean that the bank will lose the legal right to recover the due amount So, any recovery made against a bad loan after writing off is considered as a profit for the bank in the year of recovery.
- It helps the bank to make its balance sheet clean
- When a loan is written off, the lender or bank receives a tax deduction on the loan value. But the lender is still legally allowed to pursue the debts and generate revenue from it.
What is Loan Waive-off?
Another term which is quite commonly used in the context of bad loan is loan waive-off. Many people tend to confuse between loan write-off and loan waive-off as the nature of both the tools is almost similar. In loan waive-off, the borrower is technically exempted from that repayment. It means there is no chance of recovering a loan from the borrower by the lender or bank. It basically refers to the process of releasing the borrower from the burden of loan repayment and no recovery will be made by the lender. The bank will not collect dues from the payment defaulters or no legal action shall be taken against them.
Loan waiver or loan waive-off is primarily a selective provision. This is usually extended to farmers who have gone through stressful situations like the poor monsoon, abnormal conditions, floods, earthquakes, natural calamities due to which farming may have affected them and they are unable to repay the debt. In situations like these which are beyond their control, loan waive-off provides financial relief to the farmers by releasing their burden of debt repayment. In India, the provision of loan waive-off is generally called by the government for priority sector lending like Agriculture.