Renegotiation or debt restructuring: when and how to do it

  Renegotiating the conditions of our loans or requesting a restructuring of the same are alternatives that we have when we need help to avoid being late in paying them. Both options allow us to gain peace of mind and stability in our cash flow, to be able to decide what other strategy to apply […]


Renegotiating the conditions of our loans or requesting a restructuring of the same are alternatives that we have when we need help to avoid being late in paying them. Both options allow us to gain peace of mind and stability in our cash flow, to be able to decide what other strategy to apply to get out of debt.

In this article you will see how both options can help you improve the conditions of your credits, what are their advantages and what are their risks, so that you can make the best decision.

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Renegotiation vs Restructuring

As of October 2017, these two terms do not necessarily have the same meaning. Both strategies are options to which we can apply if we have already fallen behind in the payment of our obligations (in the first case, as long as the delay does not exceed two months).

In addition, they have in common that both renegotiating and restructuring basically means evaluating with our creditor the possibility of changing the credit conditions to bring us up to date and continue paying our debt without stopping paying their monthly installments.

Unlike the redeemer, it is possible that we end up modifying the initial conditions of the credit – beyond the rate and the term – and, unlike the purchase of a portfolio, we will not change the financial entity when using this strategy.

What is a renegotiation of the conditions of a loan?

A renegotiation allows a person to request a financial entity to modify the credit conditions originally agreed upon. The main advantage of it is that it is possible to request it when we are already in default, as long as we do not we are more than two months behind in paying our loan installments.

In addition, if we reach an agreement with the financial entity to which we owe, this modification of the credit conditions will not adversely affect our credit history.

What is a debt restructuring­­­­?

A restructuring is an agreement by which the financial entity takes on all the debts that its client, it has with this and groups them in a new obligation, with new terms and interest rate. Sometimes it can look exactly like a renegotiation – especially if the client only owes a debt to the entity-; However, the difference is that these modifications are not part of the procedures.

Consequently, unlike a renegotiation, the restructuring does negatively affect our track record, credit because the bank automatically assigns a higher risk rating to the debtor.

The only way the person’s credit rating could not be affected would be by handing over to the bank better collateral on the new loan. One way to do it would be through co-debtors, or against a good real estate, for example.

When to request a renegotiation of our debts?

The most common reasons to go to this would be when:

  • Due to factors external to us, our income has been affected and we anticipate that we will not be able to continue complying with our obligation in the terms in which it is currently negotiated. At this point, the advantage is that if we achieve the re-financing before falling into default, we will not be affected by our history credit.
  • We have already fallen behind in the payment of the obligation (no more than 2 months) and we want to evaluate with our entity financial conditions more favorable to guarantee compliance with it.
  • These two reasons also apply to the restructuring of our debts, except that it would be possible request a restructuring even with a delay of more than 60 days. As we have said before, it is necessary understand that if we talk about restructuring, our credit history will be negatively affected.

The risks of a renegotiation

There are two main risks in these options. The first is that it is not a strategy in which we have the power to decide the new conditions of our credit. The financial entity may refuse to change the initial credit conditions in accordance with your internal policies and in accordance with our proposals.

Regarding renegotiation, there is also the risk that we will breach the agreements we reach with our creditor. If after a re-financing we stop paying again, in other words, if we fall into a default of 30 days or more, the credit will have a restructuring status in our credit history with which we will be affected by our assessment–, in addition to the report for arrears that the delay in payment may carry.

How to request a renegotiation or restructuring­?

In this case, the best strategy is to go to the entity in person and ask the advisor to file a request modification of the credit conditions that we have with it. Application requirements may vary by entity.

It is important to ask that if the renegotiation is carried out, they inform us:

  • The new contractual conditions established: rate, term, payment plan, etc.
  • The effects of failing to pay the obligation under the new conditions.
  • The total cost of the operation.
  • Final comments on the renegotiation or debt restructuring

Both are strategies that can be useful when we have realized that we can become in problems to comply with the timely payment of the installments of our obligations. In order to use properly it is important to take into account that:

By themselves they are not a strategy to get out of debt. What they do is improve credit conditions to free up cash flow (that is, have more cash at the end of the month) and use that cash that we released in the solution to our debt problem.

Used wrongly, they are just a tool to buy time while the underlying problem grows again. Well used, allow us to save time to restructure our spending and apply a snowball method to get out of debt.

With My CFO’s professional assistance, you’ll no longer need to worry about financial obligations not being up to date. Call us now!