Rescheduling of loans with severe debt restructuringOn January 25, 2020 by Carol Miller
How can this be done seriously despite various entries in the Credit Bureau? A rescheduling can be done eg by converting a fixed interest rate into a variable interest rate or vice versa. As a classic example of debt restructuring, you can borrow a new low-interest loan to repay an existing senior loan.
The loan for rescheduling despite Credit Bureau – clever & serious As a method of saving interest, the Credit Bureau credit is hardly suitable for rescheduling, since its interest rates are as high as for a discretionary credit. Serious credit intermediaries and, under certain conditions, a few banks can arrange or lend under Credit Bureau credit at acceptable conditions.
Possibility for borrowers to reschedule debts
Debt rescheduling is a measure by which highly indebted companies, individuals and governments can optimize their debt situation. This may result in new loans being taken to achieve this goal. In the long run, however, lower interest costs should reduce the burden on businesses and contribute to debt reduction.
Rescheduling is always an external restructuring, as it requires at least one lender. In addition, a distinction must be made between postponement and debt relief, since both are not debt restructuring. A rescheduling can take place, for example, by converting a fixed interest rate into a variable interest rate or vice versa.
The classic example of debt rescheduling is the addition of a new low-interest loan to repay an existing old loan. This reduces costs and gives you more freedom than other providers. High levels of debt often occur when a company makes large investments in loans without paying attention to potential risks.
For example, it is assumed that loans required for the investment can be amortized quickly by increasing sales. Particularly in economically difficult phases companies and associations tend to ignore the dangers and to grant large loans. The high level of loans and rising debt levels mean they are looking for a way out.
Debt rescheduling is a good way to reduce the cost of borrowing.
This requires new loans. In addition, it also makes sense to combine loans from different vendors in a single loan. This means that only one installment payment is due per calendar month, which improves the entrepreneur’s overview and slightly reduces the complexity of his debts.
However, when declaring a loan, the bank must ensure that certain deadlines are met. Variable rate loans are viable within three weeks. In the case of loans that lead to premature termination, a prepayment penalty is almost always payable. After a rescheduling, the amount owed is therefore usually higher than before.
Because the new loan consists of the totality of all existing loans plus the early repayment penalty. Depending on how many loans are terminated and how high the penalty for early repayment penalties then are, the company must decide whether a rescheduling makes sense. The rescheduling was traceable until the early 1980s only for companies and individuals.
Since then, however, it has also repeatedly become a possible alternative for heavily indebted countries. The reason for this debt burden is comparable to that of companies. The country is investing heavily, for example in building up some prestigious projects. In the event of a tax deficit, the federal government can not repay the loans and, due to the high interest rates, gets into a debt spiral.
If a condition is so strong in a crisis situation that rescheduling is a possibility, it will in practice be initiated and enforced by international and monetary institutions or the World Bank. If the lenders are mainly firms and credit institutions, the LDC plays a similar role. For a rescheduling, the third country in question generally has to fulfill different conditions and obligations.
Otherwise, despite lower interest rates on the new loans, the countries concerned are not threatened with any genuine effort to reduce their debt. Again and again, the chances of success of a mere rescheduling are called into question and questioned by experts. The chances of success of such a rescheduling are manifold. A mere reorientation of borrowing costs does not guarantee that the institution in question will recover.
That debt is high is the result of a number of factors that need to be considered. The rescheduling does not remedy the shortcomings within a company that make it able to do so. Therefore, many additional structural measures are needed to repay the loans. That is why there is a great deal to be done here, and you can not just rely on debt restructuring.
Only when the state, entrepreneurship or the individual actually generates an overhang, it is reasonable to reschedule the debt. In addition, the cancellation and taking out of loans lead to additional costs. That means, first of all, the debt and thus the borrowing costs increase. For this reason, it is first of all necessary to examine precisely whether a debt rescheduling is economically justifiable.