A Short Guide on Home Loan Restructuring vs. Home Loan Refinancing

While loan restructuring and refinancing may sound similar, they are different terms and can impact your ability to pay differently. In this post, we will discuss the similarities and differences between the two processes to help you make an informed decision when it comes to home loan settlement.

What is loan restructuring?

Loan restructuring refers to the process of altering an ongoing loan by changing the existing terms of the contract. Many borrowers choose to restructure their home loans when they struggle financially and find it extremely difficult to pay their loans on time.

A loan restructuring process may involve:

  • Increasing the tenure of loan repayment
  • Changing the frequency of interest payments
  • Reducing the loan EMI

These changes are done to make it easier for the borrower to repay the loan timely. This option is chosen usually when borrowers are on the verge of bankruptcy or they are deemed financially unstable to meet the loan obligations any further.

And yes, loan restructuring may negatively impact your credit score and therefore, it is chosen only as a last resort.

Most banks are willing to restructure loans only if it allows them to recover their debts in full or they have confidence in the intent and capability of the borrower.

What is loan refinancing?

Loan refinancing is a process that involves applying for a new loan with better terms than the previous one and can be used to pay the previous loan. This option is chosen mostly when borrowers find a better option elsewhere.

Refinancing a home loan is a much quicker process than home loan restructuring as it is easy to qualify for refinancing. Unlike home restructuring which impacts your credit score negatively, loan refinancing can have a positive impact on the credit score because the payment history will show that the original loan is paid off.

Is loan refinancing a good idea?

Yes, if you find a home loan with better terms, it is worth refinancing your home loan. You can refinance a home loan for various purposes, such as:

  • To reduce the interest loans on the loan
  • To consolidate the loan
  • To change the loan structure
  • To reduce the overall burden of loan
  • To have a longer tenure for repaying a home loan
  • To borrow an additional amount
  • To reduce the cost of the loan
  • To enjoy better services and features offered by the new lender

In short, while loan restructuring is the process of changing the terms of an ongoing loan, loan refinancing is the process of shifting an ongoing loan from one lender to another. One chooses loan restructuring to avoid loan defaults but loan refinancing is chosen to enjoy better interest rates and loan terms.

Since each option affects your credit score and ability to pay differently, it is best to make your choice accordingly. If you can’t figure out what to do to repay your home loan, connect with home loan settlement experts today.

Important Things To Know About Debt Consolidation In Dubai

Debt consolidation is nothing more than putting all of your debts into one. In general, this is done when there are too many loans and a high-interest rate that must be paid on numerous loans. A new loan is all that is needed for debt consolidation, which is an efficient way of paying off previous loans.

It is evident that paying large interest each month results when there are too many loans from multiple banks with various interest rates. After making the regular monthly payment, there would be just one loan remaining that had a far lower interest rate and would have paid off all of these debts.

If you have several credit cards and personal loans, consolidating your debt is unquestionably an excellent option. You would not be able to save money or pay off these monthly obligations because there would be so many payments in line.

It saves you time because you only have to make one payment since all of your debts have been combined into one. Fortunately, there are numerous debt consolidation services in Dubai that offer these particular loans.

What benefits come with using a personal loan to consolidate your debt?

  • You can lower your interest rate:

Rates on personal loans may be lower than those on other forms of debt. You can save money on loan repayment if you can be approved for a low-interest personal loan and lower your rate.

  • You could secure a low rate:

When you borrow money, your interest rate may occasionally change. In other words, it is connected to a financial index, such as the prime rate. Generally speaking, your rate will increase if the index rate does. Get a fixed-rate consolidation loan if you are tired of having variable-rate debt so that you will always know how much you will have to pay each month.

  • You will have a set repayment schedule:

When you take out a personal loan, you consent to pay it back according to the predetermined timeline outlined in the loan agreement. You’ll know precisely when you’ll be debt-free if you make your payments on time because you’ll get your loan term when you apply. Be aware that your lender can impose a prepayment penalty if you intend to pay off your loan early.

  • You could boost your credit:

Your credit ratings are determined by a variety of elements, each of which is given a distinct weight. Your credit usage rate may suffer if you use all of your available credit. A reduced utilization rate may improve your credit score. Thus, debt consolidation with a personal loan may improve your credit ratings if it results in a reduced credit utilization rate and more on-time payments.

Personal loans for debt reduction are available from several debt consolidation services in Dubai. These lenders provide flexible periods and fair rates of interest, which might make it simple for you to pay back the borrowed money. Before approaching a lender for a personal loan, double-check your eligibility and credit score.

How To Get Out Of Debt In 5 Easy Steps

It’s easy to get into debt, but it can be very painful and difficult to get back out. It can take just a few years to create tens of thousands into debt, but it takes years and years to pay off that debt. Finding yourself deep in debt can be disastrous. The good note is, getting out of debt is pretty much possible it just takes a little time. While some debts can be unavoidable like, a car loan or mortgage, you can deal with other unnecessary debt that is causing you with huge stress.

Everyone who pays off their debt does it a different way. They often combine strategies to chip away their debt, and they stick with those strategies until the debt is gone. Ask for debt relief help sooner or later. Not only you will better know what you should do also you will have more options available to you.

To get out of debt you need a plan and you need to execute that plan. To help, the Lin International team shares these 5 ways you can approach how to pay off debt and leave some, if not all, of your financial burden behind:

    1. List all of your debts

Organizing all the details of exactly what you owe is the first step that would take you closer to dealing with them. Start with making a list of your various debts with their EMIs, debts, and interest rates. This will help you determine the most urgent or costliest debts. Once your most expensive debts are paid off, take all of that money that you were paying on that earlier debt and focus it on the next one most expensive debt, you will leave with your least expensive debt to pay down at very last. This strategy refers to the snowball method by which you will get out of your debt easily and you will feel more enthusiastic as you see your progress.

    1. Always be on time or automate your payments

Committing to pay your debts needs financial discipline. Be sure your debts are being paid on time every month. And the best way is to Set an ECS mandate with your bank to automatically settle all the EMIs on your chosen debt date. Timely payments not only keep reducing your debt through the tenure of the loan, but also save you from late payment dues, avoidable interest, and lowers your credit score. Therefore, avoid making payments manually via cash, cheque deposit, or even net banking. Just save yourself the hassle and automate your EMI and credit card payment.

    1. Too many loans? Consolidate them.

Is it becoming difficult to keep track of all of your loans? Do you have several loans? Consider consolidating them into one loan, which will leave you with just one EMI. Credit cards, personal loans even home loans can provide you with this option that will eventually help you in closing various debts, leaving you with just one loan to track, also this will help you to swap a high-interest loan for a lower interest one, like paying 30% on credit card debt you could instead move to a personal loan that can charges you 15%.

    1. Spend less & pay more than the minimum

No law says you have to make only the monthly minimum payment on your credit card or loan. You can pay more. However, if you pay your mortgage off early, make sure there’s no prepayment penalty. The Flipside of earning is spending less. Ideally, depending on how far out of debt you need to get. You might do both. And there are a lot of ways to save a little that can add up – from eating out one less day a week to skipping your morning coffee out or taking your snacks to the movies rather than paying for a popcorn candy and a soda.
The extra money you save just like any extra you earn- can go straight to paying down your debt.

    1. Create a budget and debt pay-off plan and stick to it

There are many more tips and tricks to sticking to your budget every month. But following “many” is hard. The first step is to minimize a budget and make a note of your income and expenses. This will also help you think of various ways of minimizing your daily expenses. The money that is saved and can be used to clear your debt.
Make an effort to try and secure a secondary job to earn an additional type of income. The idea is to allocate and place your secondary income towards debts to set them quickly and easily. There are several ways with which you can earn an additional income. Find a way that is relevant to your background, knowledge, and skills.

Everything You Wanted To Know About Debt Restructuring | The Comprehensive Guide

Understanding Debt Restructuring

Debt restructuring refers to avoiding the risk of default on existing debt or lower available interest rates. Individuals on the brink of insolvency also restructure their debt. Debt Restructuring is a process used by an individual or by a company facing cash flow problems & financial distress to avoid the risk of default to restore its liquidity so that it can continue its operations.

In simple words- Working out on old debt with a new debt refers to Restructuring.

Debt Restructuring In The Times Of Covid-19

As it is famously said “A crisis is a terrible thing to waste” those words resonate truer than today.

The covid-19 crisis is inflicting terrible human and economic costs, it may make it possible to address politically difficult changes in laws, policies, and institutions to save the environment we live in. The government should leverage corporate debt restructuring to support a robust, sustainable, and resilient recovery.

Debt Restructuring Process: How It Works

Some companies seek to restructure their debt when financials are facing bankruptcy. A company might restructure several loans to subordinate in priority to other loans. Senior debt holders are paid before the lenders of subordinated debts if the company files for bankruptcy. Creditors are sometimes willing to reduce debt terms to avoid potential bankruptcy.

Debt restructuring sounds appealing, it’s not for everyone. It’s important to understand how it works and what are its advantages and disadvantages.

Methods To Achieve Debt Restructuring 

Any individual or a company can achieve debt restructuring by entering into direct negotiations with creditors or reorganize the terms of their repayment. Lenders and borrowers that can reach an agreement on a restructuring plan can. Different interested parties often commission their valuations and this can lead to conflicting ideas of how best to restructure the debt and borrower’s business. It can save time and be more productive for all parties to agree on a common valuation approach.

Debt restructuring typically involves the following approaches :

  1. Debt rescheduling– The aim is usually to give breathing space to a debtor in difficult times by extending the period of repayment and reducing the amount of each installment and by granting a period of grace during which no repayments will be made.
  2. Recapitalization– The term capitalization refers to a company changing the proportions of its debt and equity or the makeup of its share capital structure. This will be an attraction to a distressed borrower seeking to make its outstanding debt burden more manageable, it reflects the risk levels attached to different types of equity.
  3. Debt for equity swap– In debt for equity swap financial creditors receives shares in the restructured borrower in return for reducing or cancelling their debt claims. The debt for equity swap reduces the borrower’s balance sheet liabilities and potentially allows a lender to take some of the upsides, as a result of the swap the pre-existing equity holders will be diluted.
  4. Informal debt repayment agreements– companies that are restructuring debt can ask for lenient repayment terms and even ask to be allowed to write off some portions of their debts. This can be achieved by reaching out to creditors directly and negotiating new terms of repayment. This is a more affordable approach than involving a third party mediator and can be achieved if both parties involved are keen to reach a feasible agreement.
  5. Sale of Non-Core Assets– A borrower may be able to take the edge off by selling non-core assets or part of the business and using the proceeds to pay down its debts. A secured lender will need to give its consent to any breakup plan and be comfortable that the amount realized from the sale is appropriate and the remainder of the business will generate sufficient profits to repay its debts.

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