Two variegated terms, one often considered a doppelganger of the other. This vendible will set the record straight so that these two terms never leave you confused!

“I think I should wield for a loan” -find us an sultana on the squatter of earth who never had this thought. Countries, corporations, startups, you, me… From billions to a few thousand, we’ve all relied on a loan from financial institutions at various points in life when we were strapped for cash. Most often, a loan is a savior that we don’t want, but one we veritably need.

Despite loans stuff so ubiquitous, there are two ‘loan’ terms that still misplace the bejesus out of most people. Loan restructuring and loan refinancing… Everyone assumes they are the same thing, but they’re not. Let us shed some light on both and help you understand them better.

What Is Loan Restructuring?

Let’s say you’ve got a loan, and things don’t go as planned when it comes to loan repayment. When in such severe financial distress and inches yonder from defaulting, loan restructuring is the way to go. Often used as a last resort, it involves reorganisation of debt by interchange existing contract terms with the bank. As you once know, these terms include repayment period, repayable amount, and number of instalments that were previously well-set upon.

Let’s delve in a bit deeper:

• Always available? The option to restructure a loan is not misogynist all the time and its implementation varies on a case-to-case basis. Perhaps, that is true for anything that is used as a last resort.
  
• When to opt for it? If you’re under the sort of financial duress that is tough to climb out of, do whatever it takes to restructure your loan. Request an increased loan repayment tenure or reduced loan EMI or squint out for an option to yo-yo the frequency of interest payment.
  
• Are lenders tomfool with it? Surprisingly, yes. Lenders will analyse your financial status and once they realise that bankruptcy can’t be avoided, they’d be ready to restructure your loan. Lenders do this to stave any financing associated with bankruptcy. Restructuring still helps them to collect their interest and creates a win-win situation for both parties.

What Is Loan Refinancing?

Well, it’s scrutinizingly synonymous with getting a new loan on largest terms. This new loan, which requires a new contract, comes with a host of advantages such as lower rates of interest, lesser penalties, reduced late payments charges and transaction costs. You must have probably seen a few ‘top-up’ loan offers floating virtually in your inbox. Claim one of them and your loan has been refinanced!

Moving remoter into the abyss:

• Always available? Yes, to an extent. It’s used much increasingly liberally compared to loan restructuring and unlike it, the use of loan refinancing is not limited to tackling severe financial distress. It’s scrutinizingly like a largest offer for a responsible customer.
  
• What is it used for? Loan refinancing can be used for a variety of goals, ranging from debt consolidation and interest rate reduction to freeing up mazuma balances. Also, if you are a market whizz and are pretty sure that the market is well-nigh to go volatile, then you must avail loan refinancing, expressly if you’ve signed up for a floating rate of interest. It gives you the option to secure a stock-still rate of interest and protects you from remoter interest rate fluctuations lanugo the road.
  
• Are lenders tomfool with it? Definitely. A zest at loan refinancing is your lender’s way of saying thanks to your flawless repayment history and spanking-new Credit Score. However, a unrepealable fee or value is charged when they sanction your loan refinance application. Do factor in this fee and ensure that the deal in its entirety, including all these uneaten charges, is a favourable one.
  
• Best time to get it? Experts singing in unison – refinance your loan within the first half of your repayment tenor as it saves on interest payments. It is considering the initial phase of repayment term is when borrowers repay majority of the interest component, while the principal value is pushed to the second half.

Additional Reading: Coping with Financial Stress: Do’s & Don’ts

That’s it. The terms, their definitions, essential caveats… We think we did a decent job tent them all. But that’s not the end, however. You gotta requite us a endangerment to digress on our thing, which is Credit Score. So, let us requite you an overview on how both loan refinancing and loan restructuring affects your Credit Score.

Based on our research, what worsted us the most is that restructured loans are usually reported under ‘settled’ or ‘written off’ categories. As a result of it, lenders think of it as willful defaulting, and it thus has a negative impact on the Credit Score. On the other hand, loan refinancing has a positive impact on the Credit Score as payment history indicates your original loan as paid off.

Additional Reading: What’s A Good Credit Score For Easy Loan Approval?

That’s it, we’ve had our say. Now, if you’re going through a mazuma crunch (which we hope you’re not) and are looking to unlock funds immediately, we’ve got some low-interest loans lined up for you, with some wondrous features. Minimal documentation, instant approval, same-day disbursal, and a fully online process… You know the drill?

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