How can Loan Restructuring Impact Your CIBIL Score?

People can restructure their loans on the basis of the RBI guidelines, subject to fulfilling particular eligibility criteria like: 

1. People who have suffered financial setbacks and are not able to repay their loans are eligible for the existing Loan Resolution Framework. 
2. Individuals who have already availed credit restructuring under the last resolution framework of August 2020 are not eligible for the current scheme. 
3. Standard loan accounts can be restructured in case they are marked ‘Standard’ as of March 2021. 
4. Individuals who have received relief under the 2020 plan with a moratorium lower than two years can apply for relief under the new scheme and request an extension for the next two years. 
5. Various types of retail loans such as personal loans, home loans, and car loans are eligible for loan restructuring. 
6. The lending institutions which qualify for loan restructuring are financial institutions, commercial banks, small finance banks, Non-Banking Financial Companies (NBFCs), primary cooperative banks, regional rural banks, district and state cooperative banks. 

Loan Restructuring and its Impact on Your CIBIL Score

While the scheme is a relief for many borrowers who are having difficulties in paying off their debt, keep in mind that restructuring will have implications on your credit score. Loans that fall under restructuring will be reported in credit reports as 'restructured'. This could affect your CIBIL score.

You can always restructure if you cannot make repayments towards your loans, but the decision should be made based on your financial situation and the types of restructuring that the lender offers you.

Avoid trying to get new loans, if possible and bring down your credit utilisation ratio to 30%-40%.

Significance of Your CIBIL Score 

Credit ratings measure the ability of borrower to repay a loan based on their previous repayment track record as well as income. In addition, various credit bureaus generate CIBIL scores and credit scores in the form of a three-digit number between 300 to 900, wherein 300 denotes the lowest credit score and 900 is the highest credit score.  

A high credit score shows that the borrower has make the timely repayment of loans and experience in handling credit. Such users don’t face any default, which provides lenders more confidence in providing loans and that too in lower interest rates. Not only this but also it becomes easier to get pre-approved loans or other types of credit with exciting rewards. 

Ways to Increase Eligibility for Future Loans After Loan Restructuring?

Once you know your present credit rating after loan restructuring, you can make the required decision to improve it in order to increase your credit eligibility. One of the most effective ways is by initiating full and timely payments on your loan Equated Monthly Installments (EMIs) and credit card bills. Ensure you never miss any EMI. Longer credit lines provide a positive impact on your credit score as it highlights that you have the ability to pay dues for extended tenures. On the other hand, multiple credit enquiries will reduce your credit score. Thus, avoid applying for loans and credit cards from various lenders. 

Restructuring of Loans by the Reserve Bank of India

1. Interest that is charged, or to be accrued will be converted into other credit facilities.
2. You can reschedule the tenures of your loan repayment.
3. Specifics of the loan restructuring cover elements of liquidity, leverage, and debt serviceability.
4. A maximum of two years moratorium on your loans (based on income) will be allowed.

Things to Keep in Mind Regarding Loan Restructuring

1. No loan is eligible to become automatically restructured.
2. A request for loan restructuring sent via mail may not be considered.
3. It is only after a successful verification, that the team will contact you to discuss loan the terms of restructuring.

Documents Required to Apply for Loan Restructuring

Income proof documents:

1. Salary slips before and after 1 March, 2020
2. Income statements (self-employed/business entities)

KYC documents:

1. Aadhaar card
2. PAN card
3. Driving licence

Bank statements:

1. Last 3 months (salaried)
2. Last 6 months and statements from December 2019 till February 2020 (self-employed/business entities)

For self-employed applicants and business entities:

1. GST returns
2. MSME registration certificate
3. Income tax return

A good credit score can help you secure lower interest rates on loans and credit cards.

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