How restructuring your loan can impact your CIBIL score
Sponsored Post 21 October 2020
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The COVID-19 pandemic has affected people across the world. What began as a health pandemic soon turned into a full-blown economic crisis, which has had a serious impact on the global economy. The virus has affected over 38 million people killing over a million of them worldwide ( In terms of its economic impact, nearly half of the world’s 3.3 billion global workforce is at risk of losing their livelihoods ('s-livelihoods-their-health-and-our-food-systems). Closer to home, India's GDP is expected to contract by 10.3 per cent in FY21, as per an estimate by International Monetary Fund (IMF) ( In the first quarter of the current fiscal, India’s GDP contracted by 23.9 per cent.
RBI’s Individual Loan Restructuring Scheme
To address the economic disruption caused by the pandemic, and the ensuing income and job losses, the Reserve Bank of India (RBI) has announced a loan-restructuring plan to offer relief to impacted borrowers, who may struggle to repay their debt. The idea behind this loan-restructuring plan is to provide relief to the maximum number of retail borrowers who may struggle to pay their EMIs. This would be achieved by allowing them to repay as per their changed repayment capacity, which would be aligned with the new repayment terms depending on the agreement they reach with their bank. It could include rescheduling of EMIs, lowering interest rates, conversion of interest into another loan, or through granting loan moratorium subject to a maximum of two years.
This one time loan restructuring comes after the period of the loan moratorium scheme announced by the Central Government ended in August. However, unlike the moratorium on term loans, which was open for all, only those borrowers, whose income has been adversely impacted due to the pandemic, and repayment capacity seriously restricted, would be eligible for the loan-restructuring scheme announced by the RBI. This is also the first time that the RBI has announced a resolution plan specifically for retail loans.
Impact on Credit Score
While this scheme may come as a relief for those borrowers who are genuinely struggling to service their debt, one must remember that any restructuring will come at a price and may have a long-term implication on the financial future. For example, the loans taken up for restructuring could be reflected in credit reports as ‘restructured’, which may affect your CIBIL score. Hence, your chances of availing another loan or credit card may be affected in the future if you opt for the restructuring. 
Having a high CIBIL score suggests that you have been repaying your debt and are experienced in handling credit. It will give lenders a good reason to offer you a loan, and that too at lower interest rates, as you have a low probability of turning a defaulter. Several lenders offer quick and pre-approved loans to individuals who have a high credit score. A high credit score could also help you get a credit card with better rewards and benefits, and higher credit limits.
It would be a good idea to check your CIBIL score before opting for the loan-restructuring scheme. One can easily check this on Finserv MARKETS website or the Finserv MARKETS App that provides your entire financial analysis in one report. Moreover, you can get the CIBIL report for free and it would include not only your personalized CIBIL Score, but also your performance across various parameters, thereby increasing your financial awareness and helping you make informed decisions.
How to Improve CIBIL Score
Once you know your CIBIL score, you may also take some steps to improve it. The first and foremost way of increasing your score is through making timely and full payments on your credit cards and loan EMIs. The age of the credit lines also has a moderate impact on the computation of the credit score and hence the longer you have a credit line, the stronger it reflects your ability to keep paying your dues. Making too many inquiries for loans and credit cards also adversely affects the CIBIL score, and hence you must avoid that. Most importantly, a default on your repayments can make your credit score plummet.
Should You Opt For Loan Restructuring?
If you opt for your debt to be restructured, it may also have an impact on your score, however not as much as in the situation where you don’t opt for it and then are unable to pay the EMIs. So simply put, those whose income has been severely impaired due to the pandemic can opt for the restructuring, and that too if no other option is left. Moreover, even if you opt for it, you must start repaying your EMIs in a disciplined manner as per the new repayment terms and schedule. Those who can make repayments, even with some financial strain, must continue to do so as it would help your credit-seeking ability in the long run. Make an informed choice after taking all these factors into consideration.
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