How do you Reschedule a Loan?

There are two types of rescheduling processes available to you. First, you can refinance a loan to lessen the interest you pay. For this, you have to opt for debt refinancing. In this process, you can turn your 30-year loan into 15 years. However, you have to pay more interest against the principal amount every month.

Another process is loan rescheduling, in which you can extend your loan tenure or revise your monthly installment to pay less interest monthly. This is ideal for people who want to maintain their credit score without paying late fees or payments. In certain circumstances, people have to change their job, which often takes a toll on their budget. Loan rescheduling allows you to change your due date, giving breathing space to improve your current cash flow.

Most banks favor R&R (Rescheduling and Restructuring) as it helps them reduce their non-performing facility portfolio. Besides, it also maximizes their chances of recovering credit. Consequently, it allows them to avoid borrowings from being defaulters, which is not suitable for both banks and borrowers.

Meanwhile, it also helps borrowers to improve their cash flow and avoid liquidation. To avail of this service, you have to write a letter of application to your lender. Once your application is approved, your bank will send you a Supplementary letter of offer (SLO).

Some essential elements in Loan Rescheduling

Supplementary letter of offer (SLO)

A supplementary letter of offers (SLO) is a document your bank will send you when you apply to add or revise your loan's terms and conditions. The SLO will contain all the amended terms and conditions, including the adjusted amount for monthly installment, an extension period of the loan, extra changers, etc.

The SLO is only additional terms and conditions. Other existing terms and conditions won't be affected by it. They will stay intact and valid in the original document.

Step-up payments

Some banks facilitate step-up payments. This form of flexible payment structure allows you to reduce your payments for a particular period. After that, the payment amount will increase for the remaining loan's tenure.

This is often offered to borrowers to get some additional time to earn money to pay their future payments. Sometimes, banks can also give you this option considering you can grow your business and make more money.

This is also offered to borrowers who have their salaries reduced. This is a small-time measurement allowing borrowers to have some financial relaxation until their salaries are reinstated.

Re-amortization

Re-amortization is a process where you recalculate and reschedule your loan, ensuring you can finance it successfully.

Amortization is a process to divide your loan amount into a series of fixed payments in the form of scheduled payments. In this case, you have to pay a monthly payment to pay off the interest accrued for a specific period. This slowly reduces your outstanding principal balance, and at the end of the term, you will be free of your interest and the principal amount.

For example, car loans and personal loans are some of the common examples of amortized loans.

Debt-service ratio (DSR)

Debt-Service Ration (DSR) is a process where the bank compares your cash flow with your existing debts to calculate your repayment capabilities. This is one of the most crucial factors dictating whether a bank will approve your loan application. 

DSR is calculated by dividing your monthly commitments by your net monthly income. If your monthly payment is $10,000 and your monthly commitment is $4000, then your DSR is 40 percent. Usually, DSR below 40 percent is considered safe.

However, DSR is not the only way to calculate creditworthiness. Most banks have their own internal calculation process, including your repayment history, relationship with the bank, etc.

Does loan rescheduling affect your portfolio?

Opting for loan rescheduling or loan restructuring may impact indirectly affect your credit score. It may not directly lower your credit score, but the term 'Rescheduled' will appear on your loan page. This could make your future lenders take a stricter stance while assessing your repayment capacity.

Besides, if you don't opt for loan rescheduling and fail to repay your outstanding loan, this could be considered default payment. This only makes the condition worse. For better knowledge in this matter, we recommend you consult a financial expert to make an informed decision.

End Thought:

Now that you know all about loan rescheduling, it’s time to look for an expert who can offer bespoke service. In this regard, Capital Hills Dubai would be your ideal bet as it has been offering financial mediation and loan rescheduling services for last two decades. You can count on them as they have a very good reputation in the market.

Location: United Arab Emirates

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