Loans, at times, can give an overwhelming sensation especially when times become financially challenging. When the going gets tough in repaying loans, terms such as loan settlement and loan restructuring may chip in. While both can offer relief to borrowers, the two are distinct from each other. Thus, understanding both options can give rise to making the best decision possible. Guardians Legal Solutions has in mind one thing: clarity and the provision of legal support for those traversing the thought path of financial difficulties.
What is Loan Settlement?
Loan Settlement is a negotiation between the borrower and the lender to pay an amount less than or lesser than the unpaid amount of the loan. Optionally, it is used primarily in cases where the borrower cannot repay the loan due to certain financial struggles.
How Loan Settlement works:
The borrower comes into the knowledge of his lender that he cannot repay the loan in full.
After then, there will be a consideration with respect to the financial situation of the borrower, which the lender might accept an reduced settlement amount.
The amount will either be settled as a one-off or per installment.
Lender closes the account of the borrower after having received the settlement.
Benefits of Loan Settlement:
It helps to bring down the amount of total debt burden.
It saves the borrowers from resorting to legal proceedings against them by lenders.
Provides financial relief to the borrower.
Drawbacks of Loan Settlement:
Bad effect on Credit Score: The moment a loan is settled, the credit status of the loan is changed from “Closed” to “Settled,” which affects your credit score significantly.
Difficulties in borrowed amounts in the future: Banks usually do not grant new loans to borrowers who have settled a loan so far.
Not to mention, someday this may lead to legal tussles: Some lenders may still pursue the borrower through legal means as the settlement is not able to cover all his obligations.
What is Loan Restructuring?
Under informal process loan restructuring, the terms and conditions from the loan are amortized based on an arrangement to facilitate repayment to the borrower. Modification of terms usually consists of a decrease of the interest rate, extension of repayment period, or reduction in the monthly amount to be paid.
How Loan Restructuring functions:
The borrower approaches the lender with a request to restructure the loan due to adverse financial conditions.
The lender will assess the borrower and then modifies, adds or removes terms and conditions that were previously used in the loan.
The borrower is subject to new adjusted terms of the loan that may be involving a lower EMI or extended repayment time.
The borrower now continues repaying the loan under the new conditions.
Advantages of Loan Restructuring
It Doesn’t Affect Your Credit Score: Borrowers continue to enjoy this privilege because the loan is still considered active, thus it does not harm the borrower’s credit score as much as loan settlement.
Lower monthly burden: with repaying terms changed, it would be easy to pay the loan.
Complete Financial Credibility: The borrowers of the restructuring process are still rated as responsible employees in the eyes of creditors.
Disadvantages of Loan Restructuring:
Repayment period increases: Thus, you may have to pay more interest throughout time.
Approvals are not automatic: Restructuring is approved by lenders depending on their assessment of the financial situation.
Additional costs may apply: Processing fees are charged by some lenders for restructuring loans.
Which Option is Correct for You?
To determine which option will be suitable, you will first consider the condition of your finances.
If really, you are not able to pay the full loan amount and close the loan, then loan settlement is an option for consideration even knowing that it will affect your credit score and possible borrowing ability in the future.
On the other hand, if you are still able to pay but would want a little more leeway in paying it, then restructuring is the way to go. It upholds your credibility in maintaining your finances but at the same time, relieves you of immediate financial pressure.
How Guardians Legal Solutions Can Benefit You
Guardians Legal Solutions do understand in totality how loan repayment could prove to be stressful. Our entire team of legal and financial experts can tell you the best possible solution according to your financial capacities. Whether on loan settlement or for applying with restructuring, we provide you with the best professional cover.
If you happen to have problems, especially concerning repayment of loans, do not hesitate to contact us. We help our clients regain financial stability while protecting creditworthiness.
Conclusion
Loan settlement and loan restructuring are two ways of managing loans that differ but have their rewards and disadvantages. One has it that settlement goes nearer to debt, but it injures credit scores. Restructuring isn’t damaging to financial credibility, but relieves in the longer term. Thus, understanding before you make the decision should be needed for each option. Consulting experts like Guardians Legal Solutions will help you with this in a better way so that you can make an informed decision in accordance with your financial goals.