Loan Restructuring Vs Loan Refinancing: Key Differences Explained
Loan restructuring and loan refinancing are two financial strategies that help borrowers manage debt effectively. This blog explains their definitions, benefits, and differences to help you make informed decisions for better financial health.
What Is Loan Restructuring?
Loan restructuring refers to modifying the terms of an existing loan to ease repayment. It is often used during financial distress when borrowers struggle to pay EMIs. Lenders may extend tenure, reduce interest rates, or offer moratoriums. For example, businesses affected by economic downturns may request restructuring to maintain liquidity.
Alternatively, before applying for any loan such as Home Loan, applicants can choose to plan their EMI using Home Loan EMI Calculator.
Also Read: Home Loan: All You Need to Know
What Is Loan Refinancing?
Loan refinancing involves replacing an existing loan with a new one, usually on better terms. Borrowers opt for refinancing to secure lower interest rates, reduce monthly payments or switch from fixed to floating rates. It is ideal for those not in financial distress but seeking cost efficiency. However, processing fees and prepayment charges should be considered.
Loan Restructuring Vs Loan Refinancing: Detailed Comparison
| Aspect | Details |
| Definition | Restructuring modifies existing loan terms; Refinancing replaces old loan with a new one |
| Eligibility | Restructuring for financial hardship; Refinancing for better terms |
| Impact on Credit Score | Restructuring may affect credit negatively; Refinancing usually neutral |
| Interest Rate | Restructuring may reduce rate; Refinancing aims for lower rate |
| Loan Tenure | Restructuring often extends tenure; Refinancing can adjust tenure |
| Documentation | Restructuring needs financial hardship proof; Refinancing requires fresh application |
Restructuring suits borrowers facing financial stress, while refinancing benefits those seeking improved terms without distress.
When to Choose Loan Restructuring or Loan Refinancing?
Choosing between restructuring and refinancing depends on your financial situation:
- Choose restructuring if you face temporary financial hardship
- Opt for refinancing to lower interest rates or consolidate loans
- Consider credit score impact before deciding
- MSMEs often restructure during economic downturns
Also Read: Top MSME GST Loan Scheme in India
Step-by-Step Guide to Apply for Loan Restructuring and Loan Refinancing
Loan Restructuring Steps:
- Assess current loan terms and financial position
- Contact lender and submit restructuring request
- Provide income proof and hardship documents
- Negotiate revised terms and sign agreement
Loan Refinancing Steps:
- Compare offers from multiple lenders
- Apply for new loan with required documents
- Clear existing loan using new funds
- Start repayment under new terms
Pros and Cons of Loan Restructuring and Loan Refinancing
| Option | Pros and Cons |
| Restructuring | Pros: Easier repayment, avoids default; Cons: May hurt credit score |
| Refinancing | Pros: Lower interest, better terms; Cons: Processing fees, prepayment charges |
Final Thoughts
Both loan restructuring and refinancing offer effective ways to manage debt and improve financial stability. The choice depends on your current situation and long-term goals. If you are planning to purchase property or consolidate existing liabilities, a Home Loan can provide the necessary funds with structured repayment options.
Apply now for Home Loan.
FAQs
Q.1. Can I refinance my loan if I have missed EMIs?
A. Yes, but lenders may impose stricter conditions or higher interest rates.
Q.2. Is loan restructuring considered a default on my credit report?
A. It may be flagged as a modification, which can impact your credit score.
Q.3. How long does loan restructuring approval take in India?
A. Approval usually takes 2 to 4 weeks depending on lender policies.
Q.4. What documents are needed for refinancing a business loan?
A. Common documents include identity proof, income statements, and existing loan details.
Q.5. Will loan refinancing reduce my overall repayment amount?
A. It can if you secure a lower interest rate and favourable terms.
Disclaimer:
The content presented on this page, including images and factual information, is intended solely as a summary derived from publicly available sources. GHFL/GFL (“Company”) does not claim ownership of such information, nor does it represent that the Companies have exclusive knowledge of the same. While efforts are made to ensure accuracy, there may be inadvertent errors, omissions, or delays in updating the content. Users are strongly encouraged to independently verify all information and seek expert advice where necessary. Any decisions made based on this content are solely at the discretion and responsibility of the user. Godrej Capital and its affiliates assume no responsibility for any loss or damage that may result from the use of or reliance on the information provided herein.
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