Loan extension: procedure and benefits. What happens if you still do not return the money after the prolongation? Types of credit debt prolongation
When applying for a loan, the bank sets the terms and amounts of payments, but if you can no longer fulfill the requirements of the agreement, it will ask the bank to issue an extension of the loan.
When applying for a loan, the bank sets the terms and amounts of payments, but if you can no longer fulfill the requirements of the agreement, you can ask the bank to issue an extension of the loan.
Loan prolongation is a form of assistance to a client who, for whatever reason, cannot fulfill obligations under a loan agreement. It is extremely common for a client to apply for a bank loan while having a highly paid job or a profitable business, and then he was fired from his job or his business went bankrupt. Naturally, in this case, a person can no longer pay the monthly amount that he expected. Prolongation of the loan is a change in the loan agreement in the direction of increasing the term of payment of loan obligations. The client can pay a smaller amount monthly, stretching the payment of interest for a longer period. Payment of debt in a shorter time than planned is not considered a prolongation.
Types of loan extension
- With the first method, you can change the schedule for receiving payments, but the term for the full payment of the debt remains the same. This method is good for a temporary delay in making a profit, when the client still expects to receive money soon and is confident in his ability to pay off the debt on the previously agreed date.
- The second method is much more dramatic, since the term for the final payment increases in relation to that established in the contract. An increase in the return period is issued by banks much more reluctantly than the first option, but gives the client an incomparably greater freedom of action.
How to get an extension?
The possibility of problems that prevent the fulfillment of obligations under the loan agreement on time is often foreseen in advance - the loan agreement contains a clause on the possible prolongation of the loan. If the loan agreement did not initially provide for such an opportunity, then you will have to ask the loan officer - is there such a service in the rules of this bank at all? It should be borne in mind that banks are very reluctant to provide such an indulgence and only in cases where the client cannot fulfill his obligations under the loan agreement for reasons beyond his control. In addition, if the financial situation of the client has deteriorated dramatically (for example, they were fired from work), then the bank will most likely refuse to prolong it. They willingly give it when the client has minor temporary difficulties, which should be corrected after a certain period of time.
How can a bank be interested?
If the client manages to explain to the bank employees that the prolongation is beneficial for them too, then his chances of success are significantly increased. Firstly, we can say that looking for a new client is more difficult than simply renewing the contract with you. After all, issuing a new loan is more expensive than prolonging an existing one. In addition, the longer the ability to fulfill obligations under the loan agreement is extended, the more money the bank will receive, since interest is growing rapidly.
Most borrowers try to pay off their debts without delay so as not to pay too much interest. However, sometimes people are interested in the opposite, that is, in extending the term of the contract. A loan extension can help out in situations where solvency has dropped sharply. Due to the longer repayment period, the regular payment becomes less significant, so even with small incomes, the money will get to the loan account on time.
What is a prolongation?
In the financial sector, there is often the possibility of prolonging a deposit, but with the extension of a loan deal, the situation is not so simple. By default, renegotiation of the contract is quite rare. It can be used in areas related not to a one-time loan of money, but to services that involve financing in the form of a credit line. These in the retail sector may include credit cards and overdrafts. At the same time, the credit limit will not always be available for them during the next period - for this, the agreement must contain an appropriate clause.
For ordinary cash loans or for targeted programs, debt can only be rolled over on an individual basis. Such measures can be taken as part of the restructuring of the loan, that is, when reviewing its conditions. Accordingly, the extension will not automatically equal the previous term - it all depends on the amount and the circumstances in which the client finds himself. It is not easy to obtain the consent of the bank to prolongation, but when servicing the current loan without violations, one can hope for the favor of the lender.
How to use the prolongation of the loan agreement?
There is no specific algorithm for obtaining a loan extension, since all banks have their own rules. Nevertheless, one can see a pattern in them. If circumstances force you to look for ways to reduce the credit burden, then you can act as follows:
Talk to a bank employee. This will help to find out if it is possible to postpone the repayment of the loan for a new period.
Collect documents. Good reasons for prolongation can be considered health problems, dismissal from work at the initiative of the employer, the birth of children. All of them must be confirmed by certificates, certificates or other papers.
Apply for an extension. Even if you have received a preliminary refusal, it is better to contact the bank in writing and get an official response.
Create a new payment schedule. When the parties have agreed on a new payment regime, you need to adjust the monthly amount - it will be less depending on the term.
Banks are not too willing to extend the loan, but in a hopeless situation for the client, they sometimes prefer to meet halfway than to bring the matter to a delay and court. In addition, distressed debtors always have another option - to apply to other financial institutions. Refinancing a loan at another bank also allows you to extend the term, and getting a loan to pay off an existing loan is not difficult at all.
The concept, features and rules for registration of prolongation. In what cases can a bank approve an application for an extension of the loan term?
When applying for a loan, the term for the provision of borrowed funds is clearly stipulated. A payment schedule is drawn up, according to which the borrower will return the borrowed funds in installments and pay off the interest on the loan. What to do when there is no way to pay off debts on time? Any delay entails penalties and negatively affects your credit history. To prevent serious problems, you can negotiate with the bank to extend the loan term - prolongation.
Prolongation of the loan: in what cases can the bank meet the borrower halfway
A loan extension is an extension of the term of a loan. Suppose you cannot repay the loan to the bank on time and want to delay the repayment of the loan. In this case, you can use the extension. To do this, the bank must approve your request and agree to revise the terms of the contract. But first things first.
Banks meet the needs of borrowers if they treat their obligations in good faith and intend to do everything possible to pay off the debt. If the bank refuses to issue a prolongation, it may completely lose the opportunity to receive the borrowed money. It will be necessary to collect the necessary amount as part of the trial, and this is an additional time cost. It is often more profitable to extend the loan and receive funds in full, but a little later than the due date.
As a rule, you can count on a concession from the bank when prolonging large loans. Sometimes the terms of the delay are prescribed in the contract at the stage of applying for a loan. In this case, the borrower can get an extension without resorting to additional requests. The decision to renew is influenced by the purity of the credit history. If earlier you did not allow delays and peacefully resolved all issues with creditors, then the bank would be more willing to agree to extend the loan term. If there have been litigations in the past, then the chances of getting a loan deferment will be minimal.
How to apply for a loan extension?
To extend the term of the loan, you will need to contact the bank with a corresponding request. After the application is submitted, the lender will consider the possibility of an extension and issue its decision. In addition to the application, you may need a certificate of income, a passport and a number of other documents confirming your financial condition.
When evaluating a borrower, the bank takes into account the causes of the difficult situation. If a person cannot repay the debt in a timely manner due to circumstances that are beyond his control or have arisen for objective reasons, then the creditor can meet halfway and approve the application. In the event that the irresponsibility of the borrower and his negligence in relation to debt repayment is noticed, the bank, as a rule, refuses to issue a prolongation.
In case of a positive response to the borrower's application, an additional agreement is concluded. The document prescribes the new terms of repayment of the loan. It is necessary to take into account the fact that you can ask the bank to extend the loan only once for the entire term of the contract. You should also remember about the natural age restrictions. For example, the bank will not be able to extend the loan period if it exceeds the age limits of the borrower established by the terms of the main agreement and the internal policy of the institution.
What does loan extension mean?
Loans are considered to be high-demand banking products used by individuals or companies. They allow you to make the necessary purchase at any time, for which the funds are paid in gradual and low payments.
Important! Credits issued by credit cards are considered especially in demand, since it is convenient to pay for purchases with these cards in any store.
The essence and specifics of prolongation
Before applying for any loan, a person must assess their financial capabilities for a monthly transfer to the bank of a specific amount. For this, the stability of receiving funds and the size of the salary are taken into account. But it is impossible to foresee various emergencies in which a person may lose earnings or there may be cases when money should be spent on other purposes. In this case, there are difficulties with the payment of the loan. The solution to this problem is the extension of the loan agreement. It makes it possible to significantly reduce the credit burden on the payer, so he can easily cope with payments, which reduces the likelihood of delays.
Important! If you do not use the prolongation, but simply ignore payments, this will lead to a deterioration in your credit history, the accrual of fines and penalties, as well as to the forced collection of debt through bailiffs or collectors.
What is a loan extension? This process is a peaceful and formal solution to the problem associated with the inability of the payer to pay the loan. Banking services are provided it implies a significant reduction in the credit burden. This service is beneficial not only to the borrowers themselves, but also to banks. In another way, this process is called restructuring.
Having understood what loan prolongation means, each borrower can use this service in case of difficulties with payments. The main types of extensions are:
- extension of the loan term, which leads to a significant reduction in monthly payments;
- providing credit holidays during which either only interest is paid or no funds are paid at all, and the main purpose of such a service is to enable the borrower to improve his financial situation so that he can easily cope with loan payments.
Important! This opportunity is offered only if the payer provides evidence of financial difficulties that have arisen.
The procedure for applying for an extension
Usually, when drawing up a loan agreement, it is indicated that the borrower can use the extension in the future. If the document does not contain this information, then you need to contact the branch of the bank where the loan was issued to find out about the possibility of obtaining it. Some credit organizations offer this service for each payer, but this is not specified in the contracts. An important condition for the implementation of the extension is the ability for the borrower to prove that financial difficulties really exist, and that they arose unexpectedly and through no fault of the payer. There is an increase in the probability of obtaining a prolongation if certain conditions are met:
- the payer is an active client of the bank, and he must constantly use its various services and offers;
- before the onset of financial difficulties, the citizen conscientiously fulfilled all his obligations to the credit institution, therefore he had no delays;
- the person has a good credit history;
- there is a pledge, so the bank is in any case sure that its funds will be returned.
Important! It is recommended to apply for restructuring before the immediate delay, so if there is no money that is needed for a monthly payment, then it is necessary to inform the bank employees about the situation in advance.
How to apply for an extension
If the borrower has difficulties with paying the loan, then he must promptly inform the bank about this in order to be able to formalize the restructuring. Only important life situations are allowed as reasons, which include:
- loss of the main place of income;
- the occurrence of complex diseases;
- getting into an accident or obtaining a certain degree of disability;
- other significant events leading to loss of solvency.
To carry out the prolongation process, a complete package of documents is necessarily collected, which include:
- passport and TIN of the payer;
- certificate received from the place of earnings;
- documents confirming the occurrence of a specific case that led to a deterioration in the financial situation of a citizen.
If, after studying these documents, the bank approves the prolongation procedure, then a special agreement is drawn up. It specifies new terms of crediting or other conditions leading to a reduction in the credit burden on the payer.
Important! Banks offer the opportunity to carry out the prolongation only once.
Is the process beneficial to the bank
Loan extension is not only a way to help borrowers who find themselves in a difficult financial situation, but also a profitable process for the credit institution itself. Therefore, situations are rare when banks refuse payers to implement it. The advantages of prolongation for credit institutions include:
- due to an increase in the loan term, interest increases, which has a positive effect on the bank's profit;
- the probability of a return of funds by the borrower increases, since he is provided with simple conditions for making payments;
- there is no need to collect funds from customers who have delays, and this process entails additional costs and time.
Thus, the prolongation of various loans is a popular procedure for many borrowers who have difficulty making loan payments. It is offered by almost every modern bank, and at the same time it is considered beneficial not only for payers, but also for the banking institutions themselves. It is recommended to ask for this service before the immediate onset of the delay, since in this case the payer's credit history does not worsen.
What is a loan extension?
Many Russians annually resort to a mortgage agreement, borrow money to organize or develop a business, take advantageous car loans and, of course, do not exclude the possibility of making purchases of goods in various stores using a loan.
When considering whether it will be possible for them to make monthly payments to the bank for the required amounts, first of all, a person takes into account the amount of his own wages and other funds received by him and the stability of their receipt.
As a rule, things do not go further, since the desire to get a loan for the implementation of any goal (the same computer, phone, gold jewelry, car, and so on), but even when a person, by virtue of his own abilities, has thought about all the possible risks in advance , it will never be possible to completely eliminate situations not taken into account, therefore, not a single borrower is insured against the fact that something unexpected may happen and financial problems will appear, which will complicate loan payments.
After all, it often happens that a carefully planned business fails for the most unexpected reasons, reliable and seemingly solid companies fail, enterprises delay salaries, and the prospects for additional income become almost impossible.
What can be done when a situation arises when you have a debt to the bank, however, due to unforeseen circumstances, you are deprived of the opportunity to make monthly payments in the amounts indicated by the bank within the terms specified in the contract?
Types of loan extension
As mentioned above, no one excludes the possibility of problems with repayment of the loan, in turn, the bank, of course, is also unprofitable, so financial institutions have developed a special program to find a way out in this situation, namely debt restructuring using the so-called loan extension.
Loan extension is a certain form of reducing the financial pressure on the debtor. Typically, this program involves an extension of the payment period and a decrease in the monthly payment.
Based on the current financial situation, the borrower will be offered two options for prolongation, which he can use. At the first time, changes will occur in the schedule for the receipt of payments, while the full repayment of the loan will occur no later than the dates originally set.
That is, when repaying a loan to a banking organization, and some difficulties arise, due to which it is not possible to pay following the original terms of the contract at a certain stage, the bank may provide the opportunity to postpone their repayment with a delay to a later time, of course, within the period specified in the contract.
In the second option, the loan is extended for a period exceeding the period originally established by the agreement.
How to get an extension?
As a rule, the possibility of prolongation is indicated in the terms of the loan agreement, when such a moment is not stipulated, it is necessary to ask the bank loan officer whether it is possible to extend the date of using the loan.
It is possible that the extension of the loan is provided for by the requirements of the bank, even if it is not specified in the contract. It is important to understand that banks allow prolongation in some cases in which the client is in a difficult position from and the reasons for such a situation do not depend on him.
You will increase your chances of getting a loan extension if you are an active and regular customer of a banking institution, have always faithfully followed the rules set by the bank, fulfilled your obligations with previously taken loans and did not allow delays.
If, in addition to everything, your loan was issued on collateral, and the financial situation did not get worse (for example, when you are the owner of a business and it simply became unprofitable for you to make a payment at a particular moment, or there were changes in cash receipts, but this did not affect on their stability), then the lender will be happy to make concessions to you and conclude this agreement.
Benefits of the bank during the prolongation
If, after negotiations on the extension of the loan, it seemed to you that, most likely, they would refuse you, additionally try to explain to the specialists of the financial organization that this is necessary not only for you, but also beneficial for the bank.
Each bank is interested in maintaining, and even better, improving its loan portfolio, therefore, the bank does not need to search for another client, because you are still using this money.
Granting a new loan, especially to a new borrower, is always more expensive than extending an existing loan. Moreover, the longer a person will use credit funds, the more expensive the interest payment will be.
That is, you offer a financial institution to earn money on you with the help of additional interest and a renewal fee, as well as significant savings on the absence of the need to lend money to a new client.
At the same time, mention that if you refuse to renew, a delay will inevitably occur, which is unprofitable for anyone. Before asking the bank to restructure the loan through prolongation, carefully consider the financial situation in which you will be in the near future, calculate the term and amount of the loan repayment, which will be the most optimal for you, and only then make the final decision.
When concluding the agreement, the bank indicates the date by which the payment must be made. Sometimes it happens that the borrower does not have time to make a payment due to salary delays or business problems. To solve the problem, the prolongation of the loan, that is, the postponement of the debt payment period, will help.
Order
If the borrower knows in advance that he will have problems with paying the loan, then it is necessary to immediately address this issue. It is almost impossible to issue an extension in one day. The first step is to carefully study the loan agreement in order to understand how the bank relates to changing the payment schedule. Even if there is no extension clause in the contract, you should contact a specialist in the credit department. Most likely, the bank will agree to change the payment schedule. Next, you should write an application for prolongation of the loan at the branch, a sample of which is presented below. After the full package of documents is collected, it remains only to wait for the final decision.
Options
Prolongation of the loan is carried out according to one of two schemes. In the first case, the schedule for depositing funds changes or one payment term is postponed, while the term for the full repayment of the loan remains the same. The second option is the prolongation of the loan term, that is, the postponement of the date of full repayment of the debt. Depending on the needs of the borrower, the term can be postponed for months or years.
The first option is more beneficial for the bank, but not always appropriate for the client. Not every lender will agree to extend the loan term. The Bank independently chooses the method of changing the terms of credit. To agree with them or not - the client decides. In general, not every borrower can count on the postponement of debt repayment. You need to have a good reason and provide reasoned facts.
Negotiation
Many conditions for obtaining a deferment depend on the results of negotiations between the borrower and the bank. The lender charges a fee for the extension of the loan, the amount of which depends on the amount and term of the loan. Some institutions even increase the interest rate. Changes in the terms of service of the contract may turn out to be so unfavorable that the prolongation will lose all meaning. Therefore, all the nuances of the transaction should be clarified in advance.
For the entire term of the contract, an extension can be issued only once. In case of repeated violation of the debt repayment terms, the bank will return the funds in any way, including withholding payments from the salary.
Registration
To apply for an extension, it is worth preparing a standard package of documents:
- Russian passport;
- statement;
- work book;
- certificates confirming the amount of income (from the employment service or from the accounting department of the enterprise);
- additional documents in the case.
The application should indicate the reason for the deterioration in the financial condition and the prospect, that is, the actual terms for repaying the debt. The full package of documents is considered within 10 days from the date of application. If the bank considers the arguments weighty, then the client will need to sign an additional agreement to the contract with new terms and conditions.
Prolongation Benefits
Prolongation of the loan agreement is beneficial not only to the borrower, but also to the bank. A financial institution is trying to resolve a bad debt issue without going to court. A good reason for changing the terms of service is considered to be a serious illness of the borrower, a decrease in salary and other circumstances as a result of which the financial condition has worsened. Banks are most willing to meet customers with a good credit history. It is better not to delay in paying the debt, otherwise it will be much more difficult to negotiate with the creditor.
To avoid the accumulation of overdue debts, the client can arrange debt restructuring. In this case, both parties to the transaction will achieve their goals. The client will reduce the amount of monthly payments, and he will be able to solve his financial problems. The prolongation of the loan allows the bank to save money that would have been spent on litigation. And maintain a high quality loan portfolio.
The prolongation of the loan leads to an increase in the repayment period of the debt and, as a result, an overpayment. The bank will receive a large amount of funds from the client, but certain advantages await the borrower:
- repayment of bad debts without going to court;
- maintaining a good credit history.
Alternatives
Prolongation is not always carried out by changing the terms or amount of payments. The bank may take other measures - issue a waiver (partial or complete) from the collection of a fine, draw up a new repayment schedule, defer payment of the principal amount of the loan without changing the amount of accrued interest. All of these activities are considered legal.
Output
In case of deterioration of the financial condition, the borrower can apply for a loan prolongation. In this case, the structure of payments or the debt repayment schedule changes. Most often, banks go towards customers and restructure debt. It is better to receive money from the client, albeit after a longer period of time, than to go to court. But the reason for prolonging the loan must be serious and justified. A representative of a credit institution must be sure that the client is telling the truth. Borrowers themselves most often agree to extend the maturity of debt. The overpayment of interest does not increase significantly, and the credit burden decreases.
Prolongation or extension of the contract is an additional service provided by credit institutions in order to optimize the initial financing conditions. A significant increase in the term of a favorable loan agreement occurs exclusively by agreement of the parties. The procedure is usually positioned as a method of restructuring received debt obligations, therefore it is provided in the format of an additional service.
When to extend the contract?
Prolongation is provided by commercial banks, large credit unions and even currently popular microfinance organizations as an additional service. The extension of the previously concluded agreement implies a partial revision of the original terms of cooperation. Most often, the initiator of the prolongation is the borrower who has encountered financial difficulties that do not allow repaying the loan on time.
Common reasons for extending the term of the loan agreement:
- Serious economic and political upheavals in the country.
- Obtaining a disability of any group.
- Health problems of the borrower or family members in his care.
- Change in marital status and replenishment in the family (increase in the number of dependents).
- Decrease in the current level of solvency of the borrower due to the loss of a job or income-generating savings.
- Loss of personal property for reasons beyond the control of the borrower (natural or man-made disaster).
There are several nuances that an employee of a financial institution will pay attention to when considering a client's application. For example, the loss of a permanent job is considered an acceptable reason for debt restructuring only if the borrower was fired by the employer as part of the redundancy process. Dismissal due to fault or voluntarily does not apply to justified reasons for revising the terms of the agreed loan agreement.
Advantages and disadvantages of debt rollover
The extension of the contract has many similar characteristics with a loan holiday, but the borrower must understand that these are completely different services. The essence of deferred payments is to extend the term of the contract due to the temporary (partial) or complete cessation of regular payments. Unlike credit holidays, prolongation implies the absence of any breaks in payments. The borrower is obliged to make monthly payments in the future, but an increase in the loan term will allow you to review their size.
Benefits of extending a loan agreement:
- Reducing the level of financial burden on the borrower faced with unplanned costs.
- Changing the schedule of regular payments, taking into account the specific requirements of the client.
- Revision of additional terms of the transaction.
As the number of contributions increases, the amount of regular payments will decrease significantly. This has both positive and negative sides. The financial burden on the client will be reduced, but commission payments will have to be made for each additional payment. As a result, the lender not only does not lose, but also increases profits, unless during the revision of the terms of the transaction the borrower insists on correcting financial parameters (the amount of commission and interest payments). In addition, the procedure for extending the transaction can be carried out once, and the term of the contract will also be calculated taking into account the age of each borrower.
How to get a profitable loan extension?
Any changes to the current agreement initiated by the borrower occur after obtaining the written consent of the lender. The loan extension process usually begins with an application, where the client describes in detail the problem he has encountered. If the borrower has really objective reasons due to which the opportunity to make scheduled payments is lost, the lender will increase the period of the agreement. It is more profitable for a financial institution to compromise rather than face late payments and the need for forced compensation for losses incurred by collecting debts through the courts.
Stages of the contract extension procedure:
- Studying the conditions for extending the current loan repayment period. The borrower can obtain useful information on the lender's website or during a consultation by contacting employees of a financial institution.
- Preparation and submission of an application for debt restructuring services with a significant increase in the loan term. The application should include personal data, contact phone number, bank account statement (payment receipts), contract details and objective reasons for prolongation.
- Consideration of the application by a qualified employee of the credit department.
- Collecting a package of documents and agreeing on the terms of the updated agreement.
- Drafting and conclusion of an additional agreement with an updated payment schedule.
The standard procedure for extending the term of the contract is developed by each major financial institution, even if the extension service is not planned to be provided to everyone. Since the borrower will not receive the planned amount on time by reducing the previously agreed amount of planned payments, some companies (mainly commercial banks and MFIs) will additionally change the amount of commission payments in the prescribed manner or increase the interest rate.
Conditions for extending the term of the loan agreement
Renewal is often positioned as a paid service, thereby scaring off potential customers from cooperation. Some lenders are smarter. The very service of extending the term of contractual relations is provided free of charge, but in order to gain access to it, the borrower pays a fine.
To speed up the prolongation procedure, the borrower is recommended to:
- Apply for the service immediately after the decrease in the level of solvency.
- Provide documents that confirm the fact of an unexpected and significant deterioration in the financial situation of the client.
- Show interest in renegotiating the terms of the deal. It is enough for the borrower to notify the employee of the financial institution that in the coming months he will not be able to make payments according to the current schedule.
Some lenders deliberately delay the process of renewing the contract in order to receive payments on the old schedule or accumulate penalties that the financial institution will include in an additional agreement in the future.
The borrower has the right to prolong the contract by law, so you can threaten the employees of the credit institution with going to court. The process of processing an updated transaction will immediately move forward. According to the new schedule, the client will pay the debt already in the next calendar period.
After the prolongation of the transaction, the period of validity of the contract in question can be doubled. The conditions and parameters of the prolongation always depend on the initial parameters of the transaction. For example, the balance of the principal debt, the tariff policy of the financial institution involved in the work and the current level of solvency of the borrower are taken into account. In addition, the client can take credit holidays, after which a new payment schedule will apply.
Extending the loan term by carefully reviewing the terms of the contract will allow the borrower to save money. If there is a risk of delay, it is only necessary to immediately proceed with the restructuring procedure, thereby reducing the overpayment as a result of penalties. Lenders are usually willing to accommodate those borrowers who make regular payments in good faith.
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