People with financial obligations, such as loans or credits, may find themselves in a situation where they are unable to repay the debt by the contractual deadline. In such a situation, it is worth considering an extension, which will manage to both postpone the loan repayment date and spread it into smaller monthly installments.
What is a loan extension?
A loan rollover is nothing more than an extension of the repayment term of the obligation. It doesn’t matter whether we are talking about a mortgage, cash loan, installment loan or any other bank or non-bank obligation. Loan extension can be used both when the obligation is repaid in installments and with a single repayment.
With a rollover, i.e. an agreement between the creditor and the debtor, there is a possibility to postpone the date of fulfillment of the obligation, under the terms specified therein. It is worth noting that the creditor may not always agree to a loan rollover, and everything depends on the credit policy of the bank in question.
Who can benefit from a credit extension and when?
A rollover of a loan or other bank or non-bank obligation can be used by anyone and practically at any time. The law does not impose any restrictions on the creditor or the debtor. It is the parties to the contract that determine the terms of the rollover.
If you have just taken out a cash loan, for example, and paid few installments, it may be temporarily impossible to roll over the loan. This is because the bank may consider such a request risky, since it does not know how we are really doing in repaying our obligations.
It should be noted that the extension of a loan paid in installments will not only extend the repayment term, after all, it will also affect the amount of the monthly installment. And it is the loan installments, their amount and regularity that determine whether the bank will grant financing.
How to take advantage of a loan extension?
Those considering taking advantage of a loan extension must first of all determine the term of the debt. If it was taken out for two years, for example, you need to present the creditor with a new, realistic repayment date. Once you know when you will be able to meet your obligation in full, you need to contact the creditor, such as a bank, and establish the terms of the credit extension.
If our obligation is repaid in installments, and this is how most bank loans and credits are repaid, it is important to remember that extending the loan will not only extend the deadline for repaying the entire obligation, but will also increase our debt in real terms. This is affected by interest, which, after all, is calculated precisely on the basis of the length of financing. The more time we need to repay, the more we will realistically give back to the bank.
The amount of the monthly installment, or more precisely its reduction precisely thanks to the extension, is one of the most common reasons why borrowers decide to extend the repayment term.
Advantages of a loan extension
The advantages of a loan extension are several. These include, first of all, postponing the term of the obligation to another period. If our loan is paid in installments, the advantage of the extension will undoubtedly be lower monthly installments. Extending the term of the loan repayment, for example, for a year or two, the amount of the monthly installment can shrink by up to several hundred zlotys.
Another advantage of extending the loan is to gain creditworthiness. This is because a lower monthly installment results in a smaller burden on the household budget, and thus allows more room for new commitments. This factor, however, should be carefully analyzed if you use a loan extension because of financial problems. Another commitment can only harm us.
Disadvantages of loan rollover
The disadvantage of loan rollover is, first of all, the higher cost of the loan we will pay. By stretching the repayment of the obligation over time, we increase the interest due to the bank. Although the amount of the monthly installment decreases, the value of the interest definitely increases.
Before applying for a loan extension, you should carefully analyze the real benefits of it. This is especially important in the case of large obligations stretching over a dozen or even several decades. A great example would be a home loan. By extending the repayment term by another 5 years, we can realistically give the bank even tens of thousands more. This is especially significant at a time when interest rates are rising practically from month to month.
Loan extension. Is it worth using it?
If the need to extend the term of repayment is due to financial problems we are facing or the loan installment is simply too much of a monthly burden for us, a loan extension will be a good option. By extending the term of the obligation, we reduce the installment, and thus minimize the risk of default.
If, on the other hand, the loan extension is to be used solely to increase creditworthiness, and our financial capacity is already limited anyway, adding more interest costs to the debt and adding a new commitment will not be a good solution. In such a situation, it is best to carefully recalculate any costs associated with the rollover beforehand and possibly look for alternative methods of financing new needs.
