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What can you do in case of payment difficulty?

There are several things you can do to avoid or resolve a payment difficulty.

Before taking out a loan, the bank will usually carefully consider whether you will be able to repay your debt without payment difficulty. The IPT regulation serves that purpose. However, this is not a guarantee that everything will be smooth.

What can you do in case of payment difficulty?

The central banks also consider it important that repayments be as continuous as possible. This is because less loan will be terminated.

In the most optimal case, you have an emergency reserve behind you, the amount of which gives you the opportunity to return to financial balance.

To get into a difficult situation with the least possible chance, think carefully about your options before borrowing. Because the bank gives you the opportunity, you don’t have to live with it yet. This 8 points will help you with this.

Regardless, despite the most careful consideration, life can make changes and you aren’t necessarily the cause. There are many things that can cause payment difficulties:

  • Loss of earnings due to illness: even if, say, you have to care for a sick child at home
  • Losing a loved one
  • Losing a job: you may have been the perfect workforce, but you had to be laid off at the company, maybe that company is not exist anymore.
  • Increase in the installment due to the interest rate increase
  • Suddenly a large amount of expenditure is needed: your car will crash, a storm will take your roof, and so on.

What can you do on your own in case of payment difficulty?

If you have a payment difficulty for any reason, be very active. Then, you may climb out of the pit on your own, or if you don’t, you’ll get a good point in the eyes of the lending financial institution. Although the bank moves within a regulated frame, if you indicate that there is or will be a problem, the bank is also much more cooperative than if it were taking action ex officio.

There are steps you should definitely review.

On the one hand, the bank will ask you these questions, and on the other hand, you may not even have to go to the bank:

Budget

How much is missing from the coffers, can this be saved on another item?

Increase revenue

Is it possible for you to earn extra income in any way? This can be either a second job, a salary increase request at the workplace, or even state / municipal help.

Family help

Is there a family member who can give you a helping hand in case of payment difficulties?

Prepayment option

Are there any sources of money you can use to reduce your outstanding debt? It can be either savings set aside for yourself, or even a larger amount from any other source. In case of prepayment, your outstanding obligation will decrease.

You may have read about the prepayment itself in an earlier post.

Your options provided by the bank in case of payment difficulty

By modifying an existing loan

Debt settlement loan

In the section on loan redemption, it has already been said that a debt settlement loan has a raison d’être even if you are not struggling with payment difficulties. If you also have multiple loans, especially high-interest loans, and you are likely to have difficulty repaying in the near future, a debt settlement loan is recommended.

A debt settlement loan is nothing more than a mortgage loan that the bank gives you to settle and consolidate your other debts. The advantage of this is that because there is real estate collateral behind it, the APR on the loan is much lower than on, say, a credit card.

Many people are averse to a mortgage, saying it’s cheaper in vain, but if they get stuck repaying it, the bank will take their house. I have some bad news: if you don’t pay your credit card or other non-mortgage loan, the bank will have their money by forcibly selling the assets in your name. If you have no other high-value assets other than your property, you still have the same end anyway, you only have a chance to avoid this by using a debt settlement loan.

Another advantage is that it is no longer a line of credit or a revolving loan. This is repaid in an annuity, so you cannot reuse the repaid capital here. This is beneficial to you because it reduces your outstanding debt every month.

Credit redemption

It is similar to the previous one, but here you can also change only one loan for a loan in a more favorable condition. It is not excluded that there will be no big difference between the monthly installments of the two loans, but in that case that could be decisive for you.

In the case of a loan taken out earlier, the payment difficulty may also result from the higher installment caused by the higher interest rates.

Today, HUF-based loans are disbursed in Hungary, the interest rates of which are adjusted to interbank interest rates (ie BUBOR).

3 month BUBOR 2000-2020
Source

As you can see in the picture above, the level of BUBOR is at historical depths (as well as the rate of other currencies). Thus, the possibility of replacing your existing loan with a cheaper one is realistic.

Sale of real estate

Payment difficulties are typically the most common for long-term mortgages. Then, once all the ropes are torn, you can also choose to initiate the sale of the mortgaged property on your own. You pay off your outstanding debt from the purchase price of the property and move into a property that is more sustainable for you.

The advantage of the solution over the executor is that you agree with the buyer on the purchase price. You can then sell the house around the normal market price, as opposed to when the bank does the same for a fraction of that. For properties sold due to a loan debt, the purchase price is determined by the bank based on all your debts to it and the cost of execution. And that’s definitely less than you can get for it.

By retaining existing credit

Conversion of an existing loan

If you took out a combined loan (such as a home purchase loan combined with building savings account), you paid the capital to the home savings fund under your building savings account contract and the interest on the loan to the bank. In case of payment difficulties, you can request to convert it into a traditional home loan, and even to extend the term.

Extension of term

In case of payment difficulties, you can request an extension of the term from the bank disbursing the loan in writing. At this point, the same loan debt is spread over a longer period of time, so your regular monthly installment is reduced. It is important that the debt installment does not decrease proportionately (so it will not be half for a double term), because then you will pay a little more interest to the bank as you use your money for more time.

Reduction of interest

Not all banks approve it, but there are still cases where the interest already included in the contract is reduced for a given period of time in order not to have to cancel the loan.

Discounted repayment period

This period lasts up to 6-12 months, depending on the bank and type of loan. You will then pay a lower installment to the bank than before. It is important to know that this amount should definitely cover the interest burden of your loan.

Suspension of principal repayment

It is similar to a preferential repayment period with the difference that if, due to the payment difficulty, only the interest on the loan is paid, none of the principal goes, you can request this option as well.

Debt capitalization

You can ask the bank to capitalize the overdue principal debt and its interest. This means to you that your debt to the bank will increase by this amount, but you will not have overdue. This option is obvious to you once your payment difficulty has been resolved and you are back on your feet. Of course, after the capitalization, your monthly payment obligation will be recalculated and the newly approved capital will be distributed in proportion to the term, thus increasing the principal and interest repayments.

Summary

There are countless and one more solutions to late payment. As the bank is neither a real estate seller nor a car dealer, it is also important for them to run the loan as smoothly as possible.

The easiest way to do this is to think carefully before you take out a loan to see if you really need a loan and, if so, how much is sure to fit into your budget. If, despite all this, you still have problems repaying the loan, be very active, report everything to the bank on time.
This is because the bank can see your intention to cooperate more positively, and on the other hand, they are also bound by deadlines. Beyond a certain overdue of days, they have to give it up for execution, thereby worsening your chances and situation.

Questions:

  1. Were you, either by yourself or with close acquaintances, having difficulty paying? How did you solve it?
  2. If necessary, which path would you choose yourself?
  3. How can you avoid getting into payment difficulties?

I am happy to read your questions and opinions. You can also ask us in the contact menu.

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