Loan Restructuring vs. Refinancing — What's the Difference?
Intro: Why This Matters for Personal Loans
Knowing the distinction between loan restructuring and refinancing a personal loan can help you regain control of your financial situation. Whether you’re in trouble financially or just desire improved terms on your personal loan, being informed about what options are available to you can be a lifesaver.
What Is Loan Restructuring?
Loan restructuring is a process of renegotiating the terms of your existing personal loan with your existing lender. This is normally done when you’re finding it difficult to make payments. Changes may include:
Stretching the loan period to reduce monthly payments
Changing interest rates temporarily or permanently
Suspending payments in periods of hardship (moratoriums)
Timing to Consider Restructuring:
You become temporarily unemployed or under financial hardship
You want to avoid default or late payments
You want relief now, not necessarily savings
Advantages of Loan Restructuring:
Relief from payment immediately
Prevents default or bankruptcy
Remains with the same lender for your loan, making administration easier
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Wikipedia
Disadvantages of Loan Restructuring:
May harm your credit score
Could result in paying more in interest overall because it is over a longer term
May involve costs or legal fees
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agrimhfc.com
SMFG India Credit
What Is Loan Refinancing?
Refinancing a loan involves taking out a brand new loan, often with a different lender, to settle your existing personal loan. The objectives are generally:
Getting a lower interest rate
Lower monthly installments
Rolling over debts into a single loan
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SMFG India Credit
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Vedantu
When to Refinance:
Your credit rating has changed since you borrowed the loan
Interest rates in the market have fallen drastically
You need to roll over multiple loans or change loan terms
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Wikipedia
Advantages of Refinancing:
Tends to lead to smaller interest and monthly installments
May help improve your credit rating if payments are made on time
New loan structure, possibly with more desirable features
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Tata Capital
Wikipedia
Disadvantages of Refinancing:
May entail charges: origination, closing, prepayment penalties
Temporary credit score fall as a result of credit inquiry/new loan
Requires qualifying for the new loan
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Wikipedia
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Tata Capital
4. Side-by-Side Comparison
Feature
Loan Restructuring
Loan Refinancing
Contract Created
Modifies existing agreement
New loan contract
When to Use
Financial hardship, avoid default
Cost savings, better credit, better rates
Impact on Credit Score
Often negatively affected
Potential short dip, then improvement
Process Involvement
Negotiation with current lender
Application to new lender, approval required
Long-Term Cost
Can increase due to extended term
Often lower, but fees apply
Example Scenario
Job loss → relax repayment terms
Good rates now → switch loan
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Which Option Is Right for You?
Use Loan Restructuring if:
You’re financially stressed—maybe due to job loss or medical bills
You require instant relief to fulfill basic obligations
You wish to remain with the same lender and reshuffle your existing loan
Employ Personal Loan Refinancing if:
You possess an excellent credit score and consistent income
You wish to lower your interest rate or merge debt
You are able to afford application fees and prepayment fees
How to Get Started
Review your financial position: Know your credit score, spending, and payment capability.
Discuss restructuring options with your existing lender.
Shop around for refinancing deals from banks, NBFCs, or fintech sites.
Calculate cost of total: Consider fees versus possible savings.
Apply for the selected option quickly to secure good terms.
Conclusion