Bankers advise against “loan restructuring” except in the event of “default”

Bankers advised those dealing with banks not to resort to restructuring their loans except in the narrowest limits, and when a financial default occurs, in order to avoid the accumulation of interest and profits and their renewal, in addition to the fees associated with completing the loan transaction.

They explained to “Emarat Al Youm” that the idea of ​​“reducing the monthly installment”, or having an offer from the bank, or anything else, is not a good thing, because the customer starts with every “restructuring” or “scheduling” process from the beginning, and new fees and interest are imposed on him, according to the prevailing price in the market, in addition to increasing the period, especially in long-term loans.

They warned that “restructuring” reduces the credit rating to the lowest degree, and prevents the customer from moving to other banks, or obtaining new financing.

This came in response to inquiries received by “Emirates Today” from customers regarding the advantages and disadvantages of the “loan restructuring” process, especially old and long-term loans, some of which have repayment terms of up to 20 years.

In detail, banking expert, Awatif Al Harmoudi, said: “Restructuring or rescheduling operations are usually carried out for bad loans whose owners are unable to commit to repayment on the due dates, or as a result of a decrease in the customer’s salary, which requires reducing the monthly deduction so that it does not exceed 50% of the income, according to the instructions of the Central Bank, or as a result of a decrease in the interest rate and the customer’s desire to reduce the monthly installment.”

She continued: “The first and second reasons, related to ‘stumbling’ or ‘low salary’, may be somewhat acceptable, but resorting to ‘restructuring’ to reduce the monthly installment without need for it or without justification, means more accumulation of interest and profits, and longer repayment periods, especially for long-term loans and financing.”

Al-Harmoudi advised clients not to rush into the process of “restructuring” their loans except within the narrowest limits, in order to avoid the new profits that are imposed, in addition to the existence of fees for the loan transaction itself.

In turn, the Vice President of RAK Bank, Taimur Al Mashjari, said: “The process of rescheduling loans is done either through the Non-Performing Loans Committee or through the bank. In both cases, it is a solution, but it negatively affects the customer, as it reduces his credit rating to the lowest degree, and deprives him of obtaining any new financing throughout the repayment period, in addition to the fact that he will not be able to transfer his debt to another bank.”

Al-Mashjari explained to Al-Emarat Al-Youm: “The restructuring process is a completely new transaction, and is accompanied by the imposition of fees and profits according to the percentage specified at the time. It also erases all amounts paid as previous installments, and according to the total remaining amount, the new installment is calculated.”

He added: “The only advantage of (restructuring) is reducing the monthly deduction rate, but in return, the period is longer if the loans are long-term, and if they are made over a period of four years, the customer will not be able to transfer his debt between banks if good offers are found.”

In the same context, banking expert Ahmed Arafat said: “The decline in the (IBOR), the interest rate on transactions in dirhams between banks, encourages customers to (restructure) their old loans, especially real estate or long-term loans, but care must be taken not to increase the repayment period, and to be satisfied with reducing the monthly installment as a result of the decline in interest.”

Arafat advised clients to avoid “restructuring” that includes a “top-up loan,” as it is not in their interest, and because it means paying the full interest from the beginning, and considering what was paid as if it did not happen. He said, “Therefore, clients must pay attention to this and stay away from it completely.”