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When faced with financial problems due to unemployment, ill-health, or lower income, repaying your loan EMIs becomes very hard. In such cases, you can get relief through loan restructuring that involves changing the original loan terms to facilitate repayment of the debt.
Loan restructuring is not the same as having your debt cancelled. Through loan restructuring, your bank gets an opportunity to change the loan repayment terms according to your financial position, subject to eligibility and lender policies. This can help you avoid default while keeping your home loan on track.
Types of Loan Restructuring
Depending on your repayment capacity and the lender's assessment, loan restructuring may include:
| Type | What it Means |
|---|---|
| EMI Reduction | Lowers monthly EMIs by extending the loan tenure. |
| Tenure Extension | Increase the repayment period to reduce financial pressure. |
| Moratorium | Allows a temporary pause or partial relief on EMI payments. |
| Interest Repayment Rescheduling | Revises the repayment schedule for outstanding dues as per lender policies. |
| Combination Restructuring | Use multiple restructuring options together based on your repayment ability. |
The restructuring option offered depends on your financial profile, repayment history, and the lender's internal assessment.
Loan Restructuring Process: A Step-by-Step Guide
It is a fairly easy process if you have provided the necessary details on time.
- Contact your lender: Notify them immediately if you foresee trouble repaying your loan.
- Submit a restructuring request: Clearly state the cause for your financial difficulty along with any necessary documentation.
- Document verification: The lender reviews your income, repayment history, remaining loan balance, and overall financial situation.
- Assessment: Based on the criteria set by your lender and RBI regulations, the eligibility is determined.
- Revised loan terms: After approval, the lender provides you with new loan repayment terms.
- Loan restructuring begins: Both parties need to agree to start the revised loan repayment terms.
For instance, if your salary has been reduced temporarily, restructuring can be of great use to bring down the EMI until your financial situation improves.
Also Read: Easy Ways to Reduce Your EMI Amount
Eligibility Criteria for Home Loan Restructuring
Though criteria vary among lenders, you might be eligible if you:
- Are under legitimate financial distress.
- Possess a good repayment history.
- Have a loan account that conforms to the standards for restructuring by the lender.
- Can provide evidence that there has been a change in your income/fiscal status.
- Your request falls under the RBI guidelines/lender policy.
Satisfying all these will not necessarily mean that your application will be accepted because it will be reviewed on a case-by-case basis.
Required Documents for Loan Restructuring in India
You may need to submit:
- Loan account details
- Identity and address verification
- Income proof or pay slip
- Bank statements
- Documents related to employment (if required)
- Medical reports (in case of restructuring due to illness)
- A written application letter stating the reason for the loan
Further documentation may be required based on your personal profile and the type of restructuring.
Government Schemes for Loan Restructuring
Occasionally, the Reserve Bank of India (RBI) issues regulations that facilitate lenders' provision of restructuring assistance in special situations such as economic disruptions and natural calamities.
Separately, government housing initiatives such as PMAY-U 2.0 focus on improving affordable housing access rather than restructuring existing loans. If you are planning to purchase your first home, exploring such schemes may be beneficial, subject to eligibility.
For the latest updates, always refer to official RBI and Government of India notifications.
Important Considerations to Keep in Mind
Before requesting loan restructuring, consider the following:
- An extension of your tenor can result in an increased overall repayment.
- The restructuring process will affect your credit profile depending on the structure and reporting guidelines.
- Restructuring is to be seen as a way out during periods of temporary financial difficulty and not as a repayment method for the long term.
- Carefully read through the loan restructuring process before you accept any terms.
- Keep paying back your loan based on the new repayment schedule to avoid future defaults.
- A practical approach is to discuss all available options with your lender before making a decision.
Wrapping Up
Financial problems can arise unexpectedly, even for the best of us. This is where loan restructuring comes in to help realign your payment structure while avoiding default.
When it comes to finding a solution for your home loans, affordable housing finance, or even for the process of repayment, there is IIFL Home Loans that provides you with various options of finance when it comes to purchasing homes, constructing or renovating them, balance transfer, LAP, and secured business loans. This is because IIFL Home Loans is an NBFC that uses technology and innovation to provide you with all of these financial facilities.
