Pros and Cons of Education Loan Restructure: The journey of higher education abroad is a dream for many Indian students. However, the rising costs of education can sometimes necessitate financial support in the form of education loans. While repaying the education loan, sometimes you may find difficulties in paying huge EMIs with interest. Loan restructuring can help you get better loan terms, low EMIs and long repayment periods but it can also impact your credit score. Let’s understand how loan restructuring works and what are its advantages and disadvantages.
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How Loan Restructuring Works?
As per the guidelines issued by the Reserve Bank of India, individuals can apply for loan restructuring if they are facing difficulties in repaying the loan. Banks can allow longer repayment terms, low EMIs and moratorium periods subject to terms and conditions. However, certain requirements need to be fulfilled by the customer while applying for loan restructuring.
- There shall not be any delay in the payment of EMI. There shall not be any outstanding payment for more than 30 days.
- The customers whose account is considered a ‘standard’ asset will be eligible for loan restructuring. In case of an education loan default or any default payments, the restructuring request will not be entertained.
- The moratorium period is not guaranteed in certain cases. Contact your bank and understand all the terms and conditions and the applicable eligibility criteria for loan restructuring.
Also Read: Interest rate increased by the bank? Check this blog and know all about Education Loan Refinancing and get a balance transfer for an existing education loan.
Pros and Cons of Loan Restructuring
Education loan restructuring can be a valuable tool for students and families facing financial challenges. However, it is very important to analyse the pros and cons carefully, considering the long-term impact on one’s financial well-being. Check the details below:
| Pros | Cons |
| Extended Repayment Period | Accrual of Interest |
| Lower Monthly Installments | Impact on Credit Score |
| Flexible Interest Rates | Long-Term Financial Commitment |
| Customized Repayment Plans | Potential for Higher Total Interest Payments |
Loan Restructuring: Major Pros
There are a lot of benefits of loan restructure like extended repayment periods, low EMIs, reduced interest rates etc. Let’s check some of the major pros of education loan restructuring:
Extended Repayment Period
Education loan restructuring often allows for an extended repayment period. This can be a relief for students who may face challenges in immediate repayment of education loans after completing their studies. Extended tenure leads to lower monthly instalment amounts, making it more manageable for fresh graduates who are still establishing their careers.
Lower Monthly Installments
Education Loan Restructuring can result in lower monthly repayments, easing the financial burden on students and their families. This can provide relaxation for graduates, enabling them to focus on building their careers without worrying about high EMI amounts. However, it must be noted that a longer repayment period and a low EMI can make the loan costly and you will end up paying a higher repayment amount.
Also Read: If you have additional funds, then you can make a part-payment or foreclose it. Check all details regarding Early Repayment Charges on Education Loan here.
Flexible Interest Rates
Education loan restructuring may provide the option to switch from a fixed to a floating interest rate or vice versa. This flexibility allows borrowers to adapt to changing market conditions and potentially benefit from lower interest rates over time. However, this totally depends on the bank’s internal terms and conditions.
Customized Repayment Plans
Loan Restructuring often involves customising the repayment plan as per the borrower’s financial situation. Customised plans can align with the borrower’s monthly income, ensuring that repayments are proportionate to their financial capacity. This will help the borrower to manage easily the timely EMI payments every month.
Loan Restructuring: Major Cons
Loan restructuring is done if the borrower is going through a financial crisis so that the repayment can be made easier. However, loan restructuring also has some disadvantages like making the loan costlier, accrual of extra interest amount, impact of loan restructuring on credit score etc. Always check the terms and conditions properly before opting for loan restructuring. Check some of the major cons.
Accrual of Interest
While loan restructuring may offer relief in the short term, interest continues to accrue during the extended repayment period. This could result in a higher overall repayment amount, potentially increasing the financial burden in the long run and making the loan costlier.
Impact on Credit Score
Impact of Loan restructuring on credit score can be seen but this doesn’t mean that you will be unable to take loans. It depends on the bank as well as your repayment behaviour. However, if there are outstanding, then it might impact negatively. A lower credit score can affect the individual’s ability to secure credit for future endeavours, such as buying a home or starting a business. Also, when you restructure the loan, it changes some terms like repayment period, interest rates, EMI amount etc and all these will be reflected in the credit report.
Long-Term Financial Commitment
Extended repayment periods mean a long-term financial commitment. Borrowers may find themselves repaying loans well into their professional lives, impacting their ability to allocate funds for other financial goals. If the repayment period is very long, you may not be able to secure other loans due to the debt-to-income ratio. Also, many banks may not allow higher loan amounts if you are already paying a loan.
FAQs
Change in the terms of a loan done by the lender on request of the borrower in case of a financial crisis is known as loan restructuring. In a loan restructure, the banks restructure the EMI amount, repayment period, interest rate etc as directed by the Reserve Bank of India. The lender can also provide a moratorium period in a loan restructure subject to the terms and conditions.
If you are facing difficulties in paying a huge EMI amount, you can ask your bank to restructure the loan and set a low EMI amount by increasing the tenure. As per the directions of RBI, you can apply for a loan restructuring only if there is no outstanding for more than 30 days. Default payments, SSA and NPAs are not eligible for loan restructuring.
If there is a financial crisis and you are unable to pay the loan EMI then you should apply for loan restructuring through which you can get a low EMI amount and a longer repayment period.
Loan refinancing is done when the bank increases the interest rate on your existing loan while restructuring is done to provide additional moratorium periods and low EMIs in case of a financial crisis. You can choose any of them based on your requirements.
Loan restructuring may show a negative impact on your credit score as it will reflect all the changes that have been made in the loan account. However, it is not necessary that your score will drop due to restructuring.
This was all about the pros and cons of education loan restructure. Before opting for loan restructuring, you should consult with financial experts and thoroughly understand the terms and conditions to make an informed decision that aligns with your financial goals and capabilities.
To know more about pros and cons of education loan restructure, the best bank accounts for students, forex and banking experience for global students or international money transfers, reach out to our experts at 1800572126 to help ease your study abroad experience. ;
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