Did You Know You Have the Option to Ask For A Loan Modification in Case of An Emergency?
A loan modification is a change to an existing loan agreement which you may have entered into. The loan modification will make it easy for you not to default on your loan and make the repayments affordable. Banks are generally offering a loan modification because it becomes easier for them to work with you rather than chase you down for the money you borrowed.
When you borrow money from a bank for the purchase of property or immovable assets, you are required to sign an agreement whereby you promise to make monthly payments of the money borrowed. However, if you come across financial difficulties of any type, you can request the bank to offer you a loan modification in view of the circumstances you are facing. Banks are aware of the difficulties which can be faced by people and therefore have a mechanism in hand whereby the loan, which is advanced, can be modified in several ways.
A loan modification is any day better than getting into a conflict with the bank and facing legal hassles. Let us look at how a loan modification can prove beneficial to you and the types of loan modifications offered by banks.
Some of the options offered by banks are better than others and will offer more benefits. You may not find similar options being offered by lending institutions. However, you still need to negotiate with your lender to receive the best possible results from the loan modification you have requested depending on the kind of circumstances you are facing. What are the types of loan modification offered by banks?
Postponing Payments Is the Most Common Form of Loan Modification
If you are looking for some short-term relief to deal with problems which have cropped up unexpectedly, you can request the bank to allow you to skip a few payments of the loan. This can be a good option if you have unexpected medical bills to pay or are thinking of a change of career. Skipping a few payments does not mean the bank has given up on the money. It just means you are being given extra time to make up for the payments you have skipped. Alternatively, you may consider it as an extension of the period of the loan agreement. You must also be prepared to pay extra interest if you decide to utilize this option.
Reducing The Principal Amount Owed
The best option available for you would be in the form of having the principal amount owed to the bank reduced which in some cases is certainly possible. In simple terms this would mean you would be required to pay less than the money borrowed and your monthly installments would also come down according to the reduced figure of the loan. The solution, despite being available, is rarely offered by banks because they are reluctant to forgive the debt. However, if you are lucky enough to negotiate a deal with your bank, you are advised to have a discussion with a tax advisor and understand the tax implications before you move ahead and accept the deal.
Offering You A Rate Reduction Or A Longer-Term
If your bank is willing to reduce the rate of interest charged for the advanced loan, the monthly payments you need to make also go down. The interest rate may be reduced only for a short period and therefore you must be prepared to understand the details of the offer and plan appropriately before you accept the same.
Your bank may also offer you an extension on the loan term by adding a few years to the loan you borrowed, making it easier for you to make the repayments. In this case, your monthly payments become lower because the term of the loan would have been extended. You will, however, be required to pay more as interest and also hold on to the debt for an extra period of time.
Refinancing the loan from another bank or lender is also an option which you can consider. You can have an arrangement with another financier to pay off the existing loan and replace it with a fresh loan which could offer you lower rates of interest and a longer-term for the repayment. Here again, you must be prepared for the extra interest that you will be required to pay and remain indebted for a longer period. You may also be required to pay the closing costs when you decide to refinance the loan because they are not cheap.
When facing a financial crisis of any kind, you need to explore every option which will give you an opportunity to get back on your feet. If you wish to avoid problems with credit ratings and any legal hassles after having borrowed a large sum of money, it will be beneficial for you to discuss the options of a loan modification with your bank because it is one of the best way forward for you.
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