All that you need to know about Debt Rescheduling
Most entrepreneurs find it hard to manage their debts in the early stage of their company. However, it is important to learn the art to stay strong in the long run. In this regard, here are some essential knowledge supplements on debt/loan rescheduling that every entrepreneur must know at the least.
The concept of Debt Rescheduling
While debt rescheduling can be a really useful option for many debtors, many people lack clarity about the basic concept of debt rescheduling. Debt rescheduling is the process using which the debtors try to increase the duration of the debt so they can pay it later. Most of the customers opting for debt rescheduling of loan rescheduling are people who have taken education loans, consumer credits, personal loans, and even mortgage loans. The option of debt rescheduling allows the consumers to increase the length of repayment, which eventually decreases the payment amount or the EMIs. Some consumers may also opt to freeze the payment for some time which increases the repayment period but increases the payment amount.
Tackle unforeseen circumstances
Loan rescheduling or debt rescheduling is a great way of dealing with unforeseen circumstances that may have been caused due to economic issues as well. Owing to these unfavorable circumstances, many consumers might find it difficult to repay the EMIs. In these scenarios, the debtors can reach out to the bank and work with them to choose a debt rescheduling option for their loans. In this way, the debtors can easily recover from the losses they might have incurred while not having to worry about the loan repayment for some time. This helps the debtors with more time and reduced stress and is also favorable to the lenders. Since the lenders will be receiving the monthly payments and earning the interest, debt rescheduling can prove to be a win-win situation.
Credit Score
Many might argue that loan rescheduling does not affect the credit score at all. While this statement might be partially true, it's important to understand that debt rescheduling tends to hurt the credit score and borrowing ability. The rescheduling may reflect as "rescheduled" in their credit history for debtors who have opted for loan rescheduling. This does have both direct and indirect impacts on the credit score. While the credit score might be affected relatively less, the borrowing capacity takes a hit. Some lenders might view rescheduling as a negative trait. This tends to cause issues while the consumers might look for loans.
Borrowing Capacity
It's important to understand the future borrowing needs before any consumer wishes to opt for loan rescheduling. Loan rescheduling increases the length of repayment, which also makes the EMIs less. However, since the loan is elongated, the borrowing capacity of the consumers is also compromised. Thus, if a consumer wishes to take a loan in the future and has opted for loan rescheduling, they would have to compromise on the loan amount they could borrow as per their credit score. It is always advisable to plan and ascertain the future borrowing needs, before opting for loan rescheduling.
Increase in the cost of borrowing
It's clear that loan rescheduling reduces the payment amount and increases the loan length. However, various financial institutions might tend to change the interest rates when consumers go for debt rescheduling. This implies that there are fair chances that a debtor might have to pay more interest as compared to the normal course of the loan. Also, during the elongated repayment tenure, the interest piles up, which can again be a reason for the worry of many debtors. It is advised to understand the interest terms of the banks and read the agreement terms carefully before opting for debt rescheduling. Many people also go for new loans at lower interest rates as compared to the initial loans they're considering debt rescheduling for to repay it.
Protection of the debtor’s interest and unblocking of accounts/cards
Due to the non-payment, the debtors are prone
to various calls from the financial institutions, disturbances by the recovery
teams, and even blocking accounts and cards. By opting for loan rescheduling,
the consumers can safeguard themselves from the mental harassment they might
have to undergo had they not opted for it. They can also work with the bank to
establish terms that allow them to use their accounts and cards without any
further charges to be levied due to the non-payment of the loans. This way, the
consumers can easily keep their financial independence intact.
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