In addition to the well-rooted consolidation and refinancing loan, the banking market also has a help product called restructuring loan. Due to significant similarities, often these three methods of financing are confused and the names used interchangeably. Undoubtedly, both the consolidation loan, refinancing loan and restructuring loan can significantly improve the condition of our finances and restore liquidity to the home budget. However, we cannot put an equal sign between these products. In our articles, we have already referred to consolidation or refinancing loans more than once, so today we will tell you what credit restructuring is.
Credit – can I improve my situation?
Before the bank decides to lend us the funds, it checks whether we can afford to pay the debt. Therefore, it tests our credit standing. As a rule, this is to verify that the loan installment will not be too much of a burden for us. In practice, however, it turns out that such an analysis is reflected on the date of submission of the application or in the near future. Neither we nor the bank is able to say how our financial situation will develop over the years and in what condition it will be in 10 or 15 years, let alone after 20-25 years.
Unfortunately, we are not able to predict all our problems and the related difficulties in paying the installments, especially when it comes to long-term loans, such as a mortgage, which often lasts even 30 years. Of course, it is worth blowing the cold and final choice of loan based not only on the price, but also on the collateral offered by the bank in the event of loss of financial liquidity, such as credit holidays or installment grace period. It is also worth taking a deeper look at credit insurance and not just treating it as something bad and unnecessarily raising the cost of credit. However, we also know what it looks like in life. Loans with the lowest prices are most often chosen. However, does this mean for us that we cannot improve our situation in the event of problems?
It is at this point that it is necessary to say what the loan restructuring is.
Restructuring loan what is it?
We must remember that both consolidation and refinancing are completely new obligations that involve costs. So before we decide to transfer our liabilities to another bank, we must carefully analyze not only the price of the new loan, but also the costs associated with changing the lender. In the case of a restructuring loan, the situation is slightly different. What does credit restructuring mean?
Simply put, it is a change in the repayment terms of our loan. So this is not a new loan, but only a modification of the terms of the one we currently have. Therefore, we also do not change the borrower.
Everyone can submit an application for credit restructuring. The legislator himself gives us this right. Namely, according to art. 75c of the Act of August 29, 1997. Banking law (Journal of Laws of 2018, item 2187 as amended), the borrower has the option of submitting an application for debt restructuring. The bank should, at the borrower’s request, enable debt restructuring by changing the loan repayment conditions or deadlines specified in the contract if it is justified by the bank’s assessment of the borrower’s financial and economic situation.
What is the loan restructuring in practice?
Restructuring or modification of credit terms and adapt them to the borrower’s current financial capabilities. First of all, the restructuring loan will interest us at a time when there is a shortage of funds in our home budget. We made a commitment when we had a well-paid job. The high installment was not a problem for us. Currently, due to the difficult situation in the company, our earnings have fallen and the installment is starting to weigh heavily on us. The solution will be restructuring. When should you decide on it?
Regardless of whether we are talking about a wbk restructuring loan, a bzwbk restructuring loan, pko or any other outlet. The loan should be restructured when our financial problems, and thus problems with timely repayment of the installment, are very real, however we still fulfill our obligations. Although we expect the situation to worsen, this has not yet happened. In this way, we gain in the eyes of the bank. How is this possible? If we anticipate a worsening of the financial situation and think in advance about how, despite the difficult situation, to fulfill the concluded agreements, we are reliable and trustworthy borrowers for the bank. Changing the terms of the loan and adapting them to our current options will be beneficial not only for us, but also for the bank. In this way, we simply have a much better chance of a positive decision in the bank. Applying for a restructuring loan when our problems have become a reality and we have not repaid installments for months, and tried to hide our situation from the bank, will certainly not have a positive effect on our image in the eyes of the bank.
We have already explained what it means to restructure a loan and in what situation we most often decide on it. However, is loan restructuring just a solution to problems?
We can also reach for a restructuring loan in the exact opposite situation. Namely, our financial situation can not only deteriorate, but also significantly improve. And that’s what we all wish.
As we said before, our situation over a dozen or so years often changes drastically. Many years of work and regular increases, promotion, change of employment and a better position, all this is also related to improving the condition of our finances. The installment of the loan taken 10 years ago is almost unnoticeable. In turn, the specter that the commitment will weigh on our shoulders the next 20 years can overwhelm. And in such a situation we may want to change the terms of the loan in order to pay back the debt not in 20 years, but for example in 5. At this point we can also take advantage of the possibility of restructuring the loan, which aims to change the terms or repayment terms specified loan.
How can the bank restructure the loan?
Extending the loan period
The simplest form of restructuring is, of course, extending the loan period. Thanks to this, we will be able to reduce the monthly installment. However, a longer repayment period also means a longer interest period, and thus a higher total loan cost. However, it should be borne in mind that it is always better to increase the total cost a little, in favor of reducing the amount of a single installment, so as to allow for timely repayment rather than not paying off the loan at all and exposing to the consequences in the form of interest on late repayment, which will still be higher.
Shortening the loan period
As we said, credit restructuring is not only a rescue in the event of financial problems. Restructuring also gives us the opportunity to shorten the loan period, and thus reduce the cost of the loan. Of course, in this case the monthly installment will be increased.
C is about restructuring the loan with balloon payments? It is possible to convert fixed installments into increasing installments. Thanks to this operation, we can significantly lower installments in the coming months. We can reduce the current installment to zero. In turn, each subsequent installment will be higher. This option is worth using if our financial problems are temporary and we expect the financial situation to stabilize soon. It should be borne in mind that a significant reduction in several of the earliest installments will significantly increase those with a later maturity.
Credit holidays and installment grace period
Credit holidays are deferring the installment repayment date in full. In turn, grace period in repayment of installments gives us the opportunity to postpone the installment payment in the capital part. In this way, we can gain a moment to stabilize our situation, and at this time we do not have to worry about growing debt. It should be remembered, however, that this is only a deferment, i.e. a delay in payment, and therefore our debt does not decrease, but is only delayed.
We said what credit restructuring is, in what situations it works, at what moment to decide on it and how it looks in practice. What also arises from the summary is the fact that it is worth monitoring your finances as well as the situation on the banking products market. It may turn out that we can easily improve our financial situation, and not struggle with an adverse commitment, having the wrong idea that nothing can be done about it.