Approach your bank before defaulting on your payments
• By Josef Kefas Sheehama
THIS article will give you information and advice if you are behind with your monthly instalments. From personal experience of 22 years as a Senior Credit Manager and Bank Branch Manager, I have discovered that banks are always willing to take what they can get, giving you one last chance to get back on your feet.
It is never too early or too late to contact your banker. You may be worried about talking to the bank. Hence, your first move should be to speak to your bank if you face financial difficulties.
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It is not advisable to run away from your debts. We must understand that people are finding it increasingly difficult to keep up with their loan instalments due to general increases in the cost of living. To add to the trauma, people are also finding it difficult to sell their properties to get out of debt due to the general economic slowdown. Hiking interest rates and increasing the cost of borrowing could depress the living standard. Everyone feels the squeeze when inflation is rising, so the pressure on the Bank of Namibia to manage inflation rates has grown exponentially. That could create its feedback loop, driving prices higher. This reality is frightening and potentially becomes very dangerous for consumers’ credit records.
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But before you throw in the towel, talk to your bank manager and make an in-person appointment or contact them telephonically to discuss whether the bank is willing to renegotiate the terms of your repayments and to find out who the right people are to speak to. It is important to keep in mind that the person deciding on whether to help you is also human and will probably do everything in their power to try to help you.
The bank will always try to support clients in troubled times. This is, however, limited to clients’ willingness and receptiveness to engage and accept the alternative options by working with the bank to reach a mutually sustainable solution. Avoid split banks. Consolidating your finances into one place can make managing your money much easier. It is not wise to migrate to another bank but leave debts with the previous bank. However, there is a moral and ethical obligation for yourself as a citizen of a country to do the right thing and settle your debt. You don’t want to reap what you have not sowed.
Another thing that happens is the continuous addition of late fees and other additional charges. These together hike the owed money to an even higher amount, which is, of course, even harder to pay off. If you try to avoid debts by moving away, you may allow the bank to charge you higher and institute legal action.
Furthermore, when approaching the bank, you must first establish the extent of your financial difficulty and perhaps come up with a proposal as to how you think you will be able to overcome the next couple of difficult months while still honouring your debt.
From here, the bank can always return with a counterproposal to resolve the difficulty. This will also eliminate the feeling that you might experience that the bank does not care if they approach you with a plan that is still way out of your reach. However, money worries don’t go away if we ignore them; they usually worsen. So, talk to your banker if you cannot pay and see if you can devise an alternative arrangement.
Many options are open to you, but you must start the conversation with the bank before it is too late. If you are not getting anywhere, ask to escalate your problem to the senior managers and present your case. If you reach an agreement, make sure you deliver.
At the end of the day, if you find yourself in a situation where you are struggling or unable to repay your loans due to the effects of the coronavirus pandemic, an amicable solution through negotiation is always preferred. You can negotiate for either one or a combination of debt consolidation or restructuring. If you can then show that you are experiencing financial challenges due to COVID-19, you will be eligible for paid holidays. The bank will then, on a case-by-case basis, assist with a suitable payment holiday based on your financial situation.
Moreover, here’s what you need to know about how debt consolidation and debt restructuring work and how to decide between them if you’re concerned about high debt balances.
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Debt consolidation and debt restructuring are effective ways to tackle debt. Debt consolidation combines all your existing loans into a more significant debt loan. Your bank will pay off the previous debts, leaving you with only a single loan to repay. It enables you to improve your cash flow and simplify your instalment. However, there are several things to consider before you go ahead, this includes the interest and fees on existing debts, interest charges on your new and existing debts, and repayment comparisons for your new loan. It is important to note that debt consolidation loans don’t erase the original debt. Furthermore, debt restructuring involves reducing the interest rates on loans, deferment instalments to be paid, or both.
Debt restructuring can be a win-win for both because the business avoids bankruptcy. Therefore, taking a payment holiday during the term of your loan does not change your monthly instalment amount, but the term is extended to take into account fees and interest that accrue during the grace period. Ultimately, the payment holidays will cost you more, but you will have gained immediate relief due to a constrained financial position.
To this end, to negotiate with the bank from a position of strength and enhance your credibility, you must identify the problem, take responsibility for it, and propose a reasonable solution. This will immediately impress the bank and make it much more willing to make concessions on the loan. There is also a good chance you will hear a no. If so, don’t just give up.
Therefore, instead, offer your next best option, and there is a high possibility that your bank may be willing to agree to one of those other options.