Different financial institutions are now struggling on how to adjust the terms of the different loans they gave to their members whom some are now unable to pay due to the prevailing pandemic. Some people who worked in industries that have been shut had loans and sent on unpaid leave are totally unable to submit their monthly installment. The following four strategies could be used by the two parties (The financial institution and the clients with loans) to reach a fruitful agreement.
Restructure your loan
Restructuring your loan means that the loan has to be renegotiated again meaning the loan will have new terms. Loan restructuring will means that the current balance becomes a new loan with different interest rates and the different repayment periods. Normally this will mean that the repayment period is lengthened to allow the client to have more time to source for the funds, sometimes it may mean the reduction of interest rates but not always for individuals but normally rates adjustment downwards is given to corporates who have huge loans spilling to tens of millions.
Loan repurchasing is one of the best options that are being pursued by banks and mostly Saccos. Repurchasing your loan means that on top of you current loan you can borrow more money but on new terms then that will become a new loan. this will normally take a similar interest rate but for a longer period of time on repayment terms. Therefore you have to have a well-worked out decision on how to invest this additional loan so that you will be able to repay back the new loan… you can think of starting a small business.
Consolidate your loans
This is normally referred to as a buy-off by the bankers terms and it entails your single financial institution buying all your other loans in different financial institutions and consolidating it into one huge loan with them this may include your shylock loans. This will means you will have one huge loan that will have a longer repayment period. Exercising this option will mean that more money will come to you in the form of income especially those in payslip and receive a monthly salary. This option is the best to exercise by Saccos because they have the lowest interest rates and will add you extra income.
Individual repayment Proposal
At these uncharted territories of the pandemic that has brought the word and its economy at standstill most financial institutions especially SACCOs will be willing to listen to your personal proposal and work it out with you. This is one of the best approaches because it will be based on your ability to pay the loan, Imagine those employees who worked in the hospitality industry who got hit as early as February the tourism industry got hit as from January so personal negotiation with your institution will be the best option because it might mean suspension of loan repayments for those who no longer receive any paycheque and renegotiation of terms in terms of rates and repayment time.
By Ben Kipruto SMEs Auditor & Financial Consultant