5 Smart Ways to Restructure Personal Loan Before You Default

Are you unable to pay your personal loan EMIs in a timely manner? You are not alone.

Data from RBI reports that the count of wilful defaulters has risen from 2,154 in March 2020 to 2,664 in March 2024. The amount they owed has also risen from ₹1,52,860 crore to ₹1,96,441 crore during these four years.

Don’t worry—there are methods to restructure your personal loan before default. The key is to act on time. If you act early, you can better manage your finances, avoid penalties, and prevent being declared a wilful defaulter, which can severely impact your credit score and future borrowing ability.

In this blog, we explore smart ways to restructure your personal loan.

Is It Possible to Restructure a Personal Loan?

Yes, banks and NBFCs offer personal loan restructuring facilities to help borrowers manage repayment more comfortably. If you are facing short-term financial difficulties, restructuring can reduce your EMI or extend your repayment period.

Lenders may restructure your loan in the following ways:

• Extending the repayment period: More time to repay, resulting in lower EMIs.
• Adjusting the principal amount: Recalculating the outstanding loan.
• Changing EMI amounts: Making installments more manageable.
• Modifying the interest rate: Reducing or revising interest.
• Combination approach: Applying multiple changes together.

Steps to Restructure a Loan:

1. Check Eligibility: Lender evaluates your financial condition.
2. Explore Options: Choose suitable restructuring options.
3. Submit Application: Provide required documents.
4. Understand Credit Impact: Know how it affects your credit score.
5. Approval & New Terms: Accept revised loan conditions.

Who is entitled for loan restructuring?

Lenders have specific criteria for approving loan restructuring. You may qualify if you meet the following conditions:

• Financial Hardship: Valid reasons like job loss or reduced income.
• Good Repayment History: Timely EMI payments increase approval chances.
• Timely Request: Apply before missing multiple EMIs.
• Lender Policies & RBI Guidelines: Approval depends on internal rules.

Even if you meet these criteria, approval depends on the lender’s assessment of your repayment ability.

What are the disadvantages of loan restructuring?

While restructuring offers relief, it also has some drawbacks:

• Higher Interest Cost: Longer tenure increases total interest paid.
• Credit Score Impact: Marked as “restructured,” affecting your score.
• Difficulty in Getting New Loans: Lenders may consider you high-risk.
• Not Always Approved: Approval depends on lender evaluation.

Always compare alternatives before choosing restructuring. Budget adjustments or refinancing may also help avoid long-term financial stress.

Does loan restructuring affect CIBIL?

Yes, restructuring affects your CIBIL score. It is reported as a “Restructured Loan,” which may lower your creditworthiness.

However, the impact is less severe than a loan default. Defaults remain on your credit report for years, making borrowing difficult.

If you follow the new repayment plan responsibly, your credit score can improve over time.

Conclusion

Personal loan restructuring is an effective way to avoid default and manage repayments better. Options like tenure extension or interest modification can provide temporary relief during financial stress.

However, always consult your lender before missing EMIs and understand the long-term implications. Making informed decisions will help you stay financially stable and maintain a healthy credit profile.