Recently, the Reserve Bank of India (RBI) allowed banks to change loan terms to help boost the economy, which is expected to shrink for the first time in over 40 years.
Many borrowers face financial difficulties, making loan repayment challenging. If you have an SBI personal loan and struggle with monthly payments, loan restructuring could provide a helpful solution to ease your burden.
What is loan restructuring?
For example, Ravi took an SBI personal loan of ₹3,00,000 with an EMI of ₹12,000. Due to a job loss, he struggles to pay. The bank restructures his loan, lowering the EMI to ₹8,000 and extending the term by 2 years.
Loan restructuring helps reduce monthly payments, extend the loan term, or delay payments. This makes it easier to manage the loan, avoid missed payments, and protect your credit score.
Fact: In FY24, ARCs restructured loans worth Rs 7,948 crore, up 43% from the previous year, making up 25% of resolutions. However, asset sales fell 13%, totalling Rs 7,469 crore.
Let’s take a look at an example:
Amit, a 30-year-old from Mumbai, took an SBI personal loan of ₹5 lakh for his sister’s wedding with an EMI of ₹15,000. After losing his job during the pandemic, his income dropped to ₹20,000, making it difficult to pay the EMI. As a result, he missed payments, fearing it would negatively affect his credit score.
To avoid missing payments, Amit contacted SBI for loan restructuring. The bank extended his loan term by 2 years, reducing his EMI to ₹10,000, giving him time to find a job.
Amit’s situation before restructuring:
- Loan Amount: ₹5,00,000
- EMI: ₹15,000 per month
- Loan Term: 4 years
Amit’s situation after restructuring:
- Loan Amount: ₹5,00,000
- New EMI: ₹10,000 per month
- Loan Term: 6 years
Why Should You Consider Loan Restructuring?
Here are some reasons why you might think about restructuring your loan:
- Financial Strain: If your income decreases or you have extra expenses (like medical bills), restructuring can make your payments more affordable.
- Interest Rate Reduction: Sometimes, lenders may reduce your interest rate, which lowers the total cost of your loan.
- Avoiding Default: Restructuring can help you avoid missing payments, which can damage your credit score.
How Does Loan Restructuring Work?
Here’s how loan restructuring usually works:
| Step | Action |
| 1. Assess Your Situation | Before asking the bank for restructuring, see how much you can afford to pay. |
| 2. Contact Your Lender | Speak with your bank (like SBI) as soon as you realise that you’re struggling. The sooner you act, the better the chances of getting help. |
| 3. Discuss Your Options | The bank may offer different ways to restructure your loan: |
| 4. Negotiate Terms | You may need to provide proof of your financial difficulties (like a job loss letter) to help your case. |
| 5. Get a New Agreement | Once you agree on new terms, ensure everything is documented. |
Impacts on Credit Score
For example, Ravi’s SBI personal loan was restructured, lowering his EMI. His credit score dropped from 750 to 720 due to the restructuring, but after 6 months of timely payments, his score increased to 740.
The restructuring may lower your credit score for a short period but will improve the score as long as you maintain the new payment plan.
When Should You Restructure?
Loan restructuring is most helpful when:
- Your income declines, such as a job loss or illness.
- You face sudden financial challenges (such as medical emergencies).
- You feel that you can no longer pay for the loan.
Conclusion
Restructuring your SBI personal loan can help if you’re facing money problems. By understanding how it works, you can adjust your loan terms to make payments easier, just like Amit. It’s important to contact your bank early so they can help you find a solution to reduce your financial stress.
If you’re struggling with your SBI Personal Loan, act now—review your finances, contact your bank, and explore repayment options. This way, you will avoid missed payments and protect your credit score in the future.
