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How Restructuring Your Loan Can Impact Your CIBIL Score

The lockdown imposed as a result of the Coronavirus pandemic sent the world economy tumbling and nations are still trying to recover from the effects. India’s case is no different, with millions of active cases still being dealt with across the country. Last month, the International Monetary Fund (IMF) slashed India’s GDP growth forecast for this fiscal to -10.3%.

In this precarious situation, the Reserve Bank of India (RBI) had provided a loan moratorium of six months for borrowers which ended on the 31st of August. Once the moratorium period ended, the central bank announced a loan restructuring option.

What is loan restructuring?

In order to aid borrowers in their struggle for repaying debt, the RBI announced an option to restructure loans. This allows you the choice of repaying as per your changed repayment capacity, aligned with revised repayment terms based on an agreement with the bank. This agreement could include rescheduling of EMIs, slashing of interest rates, conversion of interest into another loan, or even moratorium of upto 2 years.

Who is eligible for loan restructuring?

The moratorium was available for one and all. However, the new restructuring scheme is only for borrowers whose incomes have been adversely affected by the pandemic, resulting in their repayment capacities being seriously restricted.

How will it affect your credit score?

The catch here is that restructuring of any kind might have a long-term effect on your financial future. One major impact could be on your CIBIL or credit score. In your credit report, this move will be recorded as ‘restructured’ and have an implication on your CIBIL score as well. This, in turn, affects your chances of availing loans and credit cards in the future.

As per the RBI’s guidelines, banks will have to report restructuring to credit bureaus, which will cause this negative effect on your financial record if you opt for it. The previous measure of loan moratorium bore no effect on credit scores, however restructuring is a more complex and specific scheme. The finer details of the impact of restructuring on your credit score will depend on how credit rating agencies regulate this change in accounts. Since this is a unique situation, there isn’t complete clarity on the matter. However, based on prevailing norms, all we can infer is that your credit score is very likely to be affected.

Should you still opt for loan restructuring?

It’s a dicey situation. If you opt for restructuring, your credit score will be affected. But if you don’t opt for it and are unable to pay your EMIs, it will be affected even more. So if your financial condition is fairly manageable, pay your EMIs off and escape all the trouble. If it isn’t, then go for the lesser evil. But before you go ahead with restructuring, make it a point to check your CIBIL score. Nowadays, you can easily check CIBIL score by PAN card online. 

Why is your CIBIL score important?

A good CIBIL score is an indication to lenders that you have repaid your debts on time, have experience in dealing with credit, and can be trusted. A score of more than 700 on a scale of 300-900 is considered good enough to get an assured loan approval. A high score can not only get you a loan easily, but also a lower interest rate, rewards, higher credit limits, and other benefits.

How can you check your CIBIL score?

Checking your CIBIL score and credit report on a regular basis is important, whether you’re planning to take a loan or not. You can check CIBIL score by PAN card online within minutes. All you need to do is visit the Finserv MARKETS website or app, where you can obtain your CIBIL score for free along with a Financial Health Check Report. Once you check CIBIL score by PAN card, you can make a decision about whether to opt for restructuring, apply for loans, credit cards, etc. or focus on improving your score first.

You will also find out your performance across parameters, providing you with financial perspective for making key decisions. What’s more, you can also apply for hassle-free personal loan, business loan, or home loan with minimal documentation.

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