What are Restructured Loans in the Philippines?

Loan restructuring in the Philippines refers to a financial strategy designed to provide borrowers with the flexibility to adjust the terms of their existing loans, thereby making repayments more manageable. This process typically involves modifications such as adjusting interest rates, extending loan tenures, or, in certain circumstances, temporarily suspending payments. The aim is to assist individuals facing financial difficulties, offering a lifeline during challenging economic times or unexpected personal crises. Commonly employed by financial institutions, loan restructuring programs are instrumental in helping borrowers regain financial stability and navigate through periods of economic uncertainty.

In the Philippines, the significance of loan restructuring becomes particularly pronounced during economic downturns, personal financial crises, or medical emergencies. Restructuring is available for almost all retail loans such as personal loans, home loans, education loans, car loans, etc. However, this completely depends on the discretion of the lender.

Features

1. Flexible Interest Rates. Loan restructuring allows for the adjustment of interest rates to more favorable levels, providing immediate relief by reducing the financial burden on borrowers.

2. Extended Loan Tenures. Borrowers can request an extension of the loan repayment period, spreading out payments over a more extended timeframe. This helps in easing immediate financial strain and making monthly payments more manageable.

3. Temporary Suspension of Payments. In cases of financial crises, loan restructuring may involve a temporary suspension of payments, offering borrowers a brief respite during challenging times.

4. Reduced Monthly Payments. Loan restructuring aims to reduce the monthly financial burden on borrowers, freeing up funds for other essential expenses such as groceries and bills.

5. Avoidance of Loan Default. By adapting the terms of existing loans, restructuring helps borrowers avoid the detrimental consequences of default, preserving their creditworthiness and ensuring continued access to financial resources.

6. Government Support Programs. Government agencies, such as SSS and PAG-IBIG, may have specialized programs as part of the loan restructuring scheme, offering favorable terms and conditions to support individuals facing financial difficulties.

Pros and Cons

Pros

Cons

How to Get a Restructured Loan?

Apply for a loan

1. Assess Your Financial Situation. Before reaching out to your lender, conduct a thorough assessment of your financial situation. Understand your income, expenses, and the specific challenges you're facing that necessitate the debt restructuring process.

2. Contact Your Lender. Reach out to your lender as soon as possible. Inform them about your financial difficulties and express your intention to request a loan restructuring. Prompt communication is crucial to demonstrate your commitment to addressing the issue.

3. Prepare Necessary Documents. Be ready to provide documentation supporting your financial situation. This may include recent income statements, proof of financial hardship, and any other documents your lender may require to evaluate your eligibility for restructuring.

4. Discuss Proposed Terms. Engage in a detailed discussion with your lender about the proposed terms of the loan restructuring. This may involve negotiating lower interest rates, extending the loan term, or temporarily reducing your monthly payments. Clarify any concerns and ensure you understand how the changes will impact your financial obligations.

5. Review the Agreement. Carefully review the terms outlined in the loan restructuring agreement. Pay attention to changes in interest rates, repayment periods, and any other modifications. Ensure you fully comprehend the agreement before moving forward.

6. Seek Legal Advice. If you have any doubts or concerns about the loan restructuring agreement, consider seeking legal advice. Consulting with a lawyer specializing in financial matters can provide valuable insights and ensure you make informed decisions.

7. Comply with New Terms. Once the restructuring is approved, adhere to the new terms diligently. Make timely payments as agreed upon in the restructuring agreement to maintain your commitment and avoid any potential repercussions.

Requirements and Conditions

Requirements

1. Credit Score. Lenders will consider the borrower's credit score to assess their creditworthiness. A higher credit score increases the likelihood of approval for loan restructuring.

2. Payment History. A positive payment history, demonstrating a track record of timely payments, enhances the borrower's eligibility for loan restructuring. Lenders want assurance of responsible financial behavior.

3. Current Financial Standing. Lenders will evaluate the borrower's current financial situation to determine their capacity to repay the loan. A stable financial standing increases the chances of approval.

4. Debt-to-Income Ratio. Lenders calculate the debt-to-income ratio to ensure borrowers can manage their existing debt relative to their income. A favorable ratio improves eligibility for restructuring.

5. Collateral (if applicable). If the loan is secured by collateral, such as a property or vehicle, lenders may consider the value of the collateral to determine the loan amount and interest rate.

6. Loan Purpose. The purpose of the loan, whether it's for debt consolidation or a specific financial need, may influence eligibility for restructuring. Lenders may inquire about the intended use of the funds.

Conditions

1. Flexible Interest Rates. Lenders may offer the flexibility to adjust interest rates, providing immediate relief to borrowers by reducing the financial burden.

2. Extended Loan Tenures. Borrowers may have the option to extend the loan repayment period, spreading out payments over a more extended timeframe for more manageable monthly installments.

3. Temporary Suspension of Payments. In cases of financial crises, lenders may allow a temporary suspension of payments, providing a brief break for borrowers facing immediate challenges.

4. Customized Solutions. Lenders, including banks, credit cooperatives, and government agencies, may offer personalized solutions tailored to the specific needs of borrowers, ensuring that the restructuring aligns with their financial circumstances.

5. Government Support Programs. Some lenders, particularly government agencies like SSS and PAG-IBIG, may have specialized programs with favorable terms and conditions to assist borrowers facing financial difficulties.

6. Collateral Reassessment (if applicable). In cases where loans are secured by collateral, lenders may reassess the value of the collateral to determine fair restructuring terms, maintaining transparency and equity in the process.

7. Maintaining Financial Reputation. Lenders often prioritize assisting borrowers in maintaining a positive financial reputation, crucial for future borrowing opportunities and overall financial stability.

Best Places to Get a Restructured Loan Today

Social Security System (SSS)

The SSS offers a debt relief scheme, the Loan Restructuring Program, providing an opportunity for members with long-overdue loans to settle them without penalties. This program is particularly relevant for those affected by the pandemic, covering various SSS loans, including salary loans and short-term member loans. The initiative aims to ease the financial burden on members while facilitating the resolution of unpaid loans.

Metrobank

Metrobank extends support to its clients seeking to restructure their debts. Clients interested in the debt restructuring process are encouraged to contact their respective branch of account for assistance. This initiative reflects Metrobank's commitment to working with clients to find viable solutions and improve their financial standing through the restructuring of outstanding debts.

Government Service Insurance System (GSIS)

The GSIS introduces the Program for Restructuring and Repayment of Debts (PRRD), a one-time condonation and restructuring program designed for inactive GSIS members with outstanding loans. This initiative is particularly beneficial for those who have left government service and face financial challenges in settling their loan balances. The PRRD aims to provide these members with a feasible path to address their financial obligations through a structured and manageable repayment plan.

Development Bank of the Philippines

The DBP Response initiative offers rehabilitation financing support to both public and private institutions adversely affected by calamities. Aimed at expediting the recovery process for businesses and projects, this program contributes to the socio-economic rehabilitation of calamity-stricken areas. Eligible borrowers include public and private institutions located in areas declared in a state of calamity by competent authorities. The DBP's Response program showcases the bank's commitment to providing financial assistance for the rehabilitation of communities affected by calamities.

Things to Pay Attention To

1. Revised Terms and Conditions. Thoroughly review the revised terms and conditions of the restructured loan. Understand changes in interest rates, repayment periods, and any other modifications. Ensure that the new terms align with your financial capacity and goals.

2. Impact on Monthly Payments. Assess how the restructuring will affect your monthly payments. Understand whether the changes provide immediate relief or if there are potential long-term consequences, such as an extended repayment period leading to higher overall interest payments.

3. Documentation Accuracy. Ensure all documentation provided during the restructuring process is accurate and complete. Mistakes or omissions in paperwork can lead to delays or misunderstandings, impacting the approval and implementation of the restructuring.

4. Compliance with New Terms. Commit to adhering to the new terms and conditions outlined in the restructuring agreement. Timely and consistent compliance is essential to maintaining a positive relationship with the lender and preventing any negative consequences.

5. Fees and Charges. Be aware of any fees or charges associated with the loan restructuring. Some lenders may impose processing fees or other charges, and understanding these costs is crucial for an accurate assessment of the financial impact of the restructuring.

6. Effect on Credit Score. Understand the potential impact on your credit score. While loan restructuring itself is a tool to avoid default and preserve creditworthiness, it's essential to confirm with the lender how the process may be reported to credit bureaus.

7. Legal Implications. If uncertain about any legal aspects of the restructuring agreement, seek legal advice. Consulting with a financial attorney ensures you fully comprehend the legal implications of the new terms and helps you make informed decisions.

8. Communication with Lender. Maintain open and transparent communication with the lender throughout the process. If you encounter challenges or changes in your financial situation, inform the lender promptly to explore possible solutions.

9. Scheduled Payments. Understand the schedule for loan repayments, especially if there are multiple disbursements or staggered payment arrangements. Ensure you are aware of when payments are due to avoid any unintentional defaults.

10. Future Financial Planning. Consider the long-term implications of the restructuring on your overall financial plan. Assess how the changes fit into your financial goals and whether they contribute positively to your financial stability.

How to Repay a Restructured Loan?

1. Understand the Restructured Terms. Familiarize yourself with the revised terms of the restructured loan. This includes changes to interest rates, extended loan tenures, and any other modifications made during the restructuring. Clarity on these terms is crucial for successful repayment.

2. Set Up a Repayment Plan. Create a detailed repayment plan that aligns with the new terms. Clearly outline when each installment is due, the amount to be paid, and the preferred payment method. Having a structured plan helps in budgeting and ensures timely payments.

3. Automated Payments (if available). If the lender offers automated payment options, consider setting up automatic transfers from your bank account. This reduces the risk of missing payments and ensures compliance with the agreed-upon schedule.

4. Monitor Account Balances. Regularly monitor your bank account to ensure sufficient funds are available for loan repayments. Overdrafts or insufficient funds may lead to additional charges or penalties.

5. Keep Records of Payments. Maintain a record of all loan repayments. This includes receipts, transaction confirmations, or any communication with the lender regarding payments. Having a clear record helps in case of any disputes or discrepancies.

6. Regular Financial Check-ins. Conduct regular financial check-ins to assess your overall financial health. This allows you to make adjustments to your budget or repayment plan if needed and ensures that you stay on track towards complete repayment.

7. Credit Score Monitoring. Monitor your credit score regularly, especially if the restructuring involves reporting to credit bureaus. Ensure that the successful repayment of the restructured loan positively contributes to your credit history.

Alternatives

1. Debt Consolidation. Consolidating multiple debts into a single loan can simplify repayment and potentially lower overall interest rates. This approach is suitable for individuals with various outstanding debts.

2. Personal Loan Refinancing. Instead of restructuring an existing loan, individuals can explore refinancing options. Refinancing involves replacing an existing loan with a new one, often with better terms, such as lower interest rates or extended repayment periods.

3. Credit Counseling Services. Seeking assistance from credit counseling services can provide valuable insights into managing debts. These services offer financial advice, budgeting assistance, and may negotiate with creditors on behalf of the borrower.

4. Negotiating with Creditors. Initiate direct communication with creditors to discuss alternative repayment arrangements. Some creditors may be willing to adjust payment terms or offer temporary relief during financial difficulties.

5. Home Equity Loan or Line of Credit. For homeowners with equity in their property, a home equity loan or line of credit can be used to consolidate debts. This approach often offers lower interest rates compared to unsecured loans because the loan is secured by your home. However, it's important to consider the risk of using your home as collateral.

6. Balance Transfer Credit Cards. This involves transferring multiple credit card balances to a single card, preferably one with a lower interest rate or a promotional zero-interest period. This can help simplify payments and reduce the amount paid in interest, but it's crucial to pay off the balance before the promotional period ends to avoid high-interest rates.

7. Peer-to-Peer (P2P) Lending. P2P lending platforms connect borrowers with individual investors who fund loans. These can be an alternative to traditional bank loans, often offering competitive interest rates. P2P loans can be used for debt consolidation and may offer more flexible terms.

8. Hardship Program. Some creditors offer hardship programs for borrowers facing temporary financial difficulties due to circumstances like job loss, illness, or other unforeseen events. These programs can include temporary reductions in interest rates, payment deferrals, or extended loan terms.

9. Bankruptcy. As a last resort, filing for bankruptcy can provide relief from overwhelming debt. It's a serious step that can have long-term financial consequences and should be considered carefully. Bankruptcy can discharge certain debts, but it also impacts your credit score and ability to obtain credit in the future.

Editorial Opinion

Important

How to Choose a Lender in the Philippines

1. Ensure that the lender is registered with the Securities and Exchange Commission (SEC) of the Philippines.

2. Investigate if the lender is a member of recognized industry associations in the Philippines, such as the Chamber of Thrift Banks or the Philippines Finance Association.

3. Carefully examine all terms and conditions of your loan contract. This includes understanding the repayment schedule, fees, and any penalties for late or missed payments.

4. Payday loans can have high-interest rates. Make sure the contract clearly outlines the interest rate and total cost of the loan, including any processing fees or additional charges.

5. Familiarize yourself with your rights regarding cancellation. In the Philippines, consumers may have the right to rescind the loan within a specific period after signing the agreement.

6. Research the lender's reputation through customer reviews, complaints, and feedback available online.

Methodology

In Finanso, we've carried out a comprehensive analysis of over 50 lenders in the Philippines, assessing them based on 35 different parameters across six key categories: accessibility of loans, customer relations, quality of service, interest rates, and transparency of conditions.

In each category, we carefully considered the most critical factors in selecting a lender. These factors include the interest rates, available loan amounts, minimum credit score, minimum income, application fees, and the speed at which funds are transferred.

At Finanso, we highly value our users, which is why we also focus on the quality of customer service, user reviews, and additional features that can aid our users in making a well-informed decision.