Two-wheeler loan: Know about the process of loan restructuring

Loan restructuring involves a modification in the terms of an existing two-wheeler loan. If you are struggling to pay your EMIs, restructuring the loan can help you manage your liabilities with reduced interest rates, longer loan tenure, or any other favourable term.

Are you encountering financial hardships to pay off your two-wheeler loan EMIs? Well, this can fetch you the unwanted tag of a defaulter.

Financial crises may arise due to unforeseen events such as loss of job, adverse business conditions, or physical illness. If you are finding it challenging to repay your existing EMI for a motorcycle loan, why not consider the option of loan restructuring?

Loan restructuring is a process that brings you the provision to negotiate the loan terms with your bank to reduce financial stress. If you are reeling under the burden of your ongoing loan, restructuring your loan terms can bail you out. 

As a part of your loan restructuring agreement, your lender would reduce your monthly EMI. You may decide to extend the loan tenure, reduce the interest rate, or get late-payment penalties waived off.

Let’s understand the process of restructuring a two-wheeler loan in detail.

What is a two-wheeler loan restructuring?

Loan restructuring involves reviewing and altering the terms of an ongoing loan where the lender and the borrower enter into an agreement. After a mutual understanding, they settle for revised loan terms. In this case, the bank or NBFC would be restructuring a two-wheeler loan. Ultimately, restructuring makes the EMIs more manageable for the borrower. 

If you are at the risk of default or bankruptcy, it’s wise to apply for loan restructuring and ease up your financial stress. Rather than defaulting on your two-wheeler loan repayment or delaying your payments, applying for loan restructuring would be a better move. At least, it wouldn’t affect your credit score and help you manage your EMIs better.

As per the new agreement, loan restructuring might involve:

• Reduction of the two-wheeler loan EMI
• Changing the frequency of paying interest
• Extending the loan tenure
• Waiving off late-payment penalties

 What are the different types of loan restructuring?

 Depending on the intensity of your financial crisis and repayment capacity, banks and NBFCs strategize different types of restructuring agreements. These include:

  1. Loan modification

The process of loan modification involves some changes in terms of repayment. This way, the bank or NBFC eases up the process of debt management for the lender. The modified terms may include a reduced rate of interest or extended loan tenure. Loan modification helps in lowering your EMI burden.

  2. Debt settlement

Debt settlement is a kind of loan restructuring where the borrower can close the loan by making a lump sum payment.

Suppose, you have taken a two-wheeler loan and promise to repay it in five years. After clearing your EMIs on time for three years, you run into a financial hurdle. You realize that making monthly repayments is turning out to be a challenge, and reach out to your bank to apply for loan restructuring. 

The bank calculates to find out that your current outstanding debt is INR 60,000. As a part of your debt settlement agreement, the lender may provide you with the option of paying INR 40,000 instantly and closing the loan. Therefore, you would be saving INR 20,000 on the deal.

  3. Debt-for-equity swap

Being a business owner, you might be on the verge of bankruptcy. Under these circumstances, a debt-for-equity swap may come to your rescue.

This is a type of loan restructuring where you exchange equity shares for debt. As a part of this deal, you need not pay the outstanding amount of your two-wheeler loan. Rather, you transfer an ownership stake in your firm to the NBFC or bank to clear the debt.

  4. Debt-for-debt swap

Another popular type of loan restructuring is a debt-for-debt swap. This financial transaction with your lender involves exchanging your two-wheeler loan debt for another one.

So, you won’t be repaying the motorcycle loan as per the previous terms, but have to adhere to a new set of terms and conditions. The same lender may swap your high-interest debt for one involving low interest for a longer period.

How to apply for loan restructuring for your two-wheeler?

Here’s how the restructuring application works.

• Apply to your lender: Visit the nearest branch of your bank or NBFC to physically apply for loan restructuring. Alternatively, you can also fill up an online form and submit your loan restructuring application.
• Application assessment: Your bank or NBFC would evaluate your application and request you to furnish relevant documents.
• Approval or rejection: After scrutinizing your documents, the financial institution would check your repayment record and present capacity. If the lender is confident in your commitment to clear the debt as per the new repayment schedule, they would approve your application. However, if your financial stature looks too unstable or they find discrepancies in the documentation process, they might reject your application.
• Revised terms and conditions: Lastly, the bank might discuss the new repayment structure or further modify the plan. You would receive the final version as per the updated terms.

How is loan restructuring different from loan refinancing?

Loan restructuring is different from loan refinancing, although many borrowers end up using the terms interchangeably. Refinancing a loan means applying for a new financial privilege having better terms compared to the previous one. When you take a new loan, you use the credit to clear your previous financial obligations. Generally, refinancing a two-wheeler loan is logical only when you come across better terms to reduce cost.

For instance, you might find a lender offering a loan at a lower rate of interest. Besides, a borrower can switch to a different lender to consolidate multiple loans. Loan refinancing becomes easy if your credit score looks healthy.

Conclusion

For motorcycle owners struggling to clear their ongoing liabilities, loan restructuring is a powerful instrument to manage your EMIs. If you are in a state of financial instability, let not the burden overwhelm you or tarnish your credit score.

 Talk to your loan manager or lender about loan modification or other restructuring options. With manageable repayment terms through loan restructuring, you can easily clear off your motorcycle loan.