LOAN MODIFICATION: AN EASIER WAY TO SETTLE UNPAID LOANS

INTRODUCTION

Loans are very important in the lives of people, especially those who urgently need financing. Individuals and companies need loans because most of the time, their financial resources are not enough to pay for their respective obligations and expenses. Individuals borrow money to make big purchases such as buying a car, or to pay for monthly expenses such as rent, water, or electricity bills. On the other hand, companies need loans to pay for their current debts or to buy additional properties to be used for expansion.

Loan-Modification

Loans, however, are burdensome when borrowers cannot pay on the due date. If these loans remain unpaid, the lenders may file a lawsuit against them to compel them to pay it. The borrowers may be compelled to sell some or all of their properties depending on the unpaid amount, or in case another person owes them money, that person may be compelled to pay to the lender instead. As such, borrowers lose not only the money they borrowed but also some or all of their properties.

While lenders may sound harsh in claiming payments, they are also open to negotiations to enable the borrower to pay the loan. This is because resorting to legal means is not always beneficial to them. This process of negotiation is known as loan modification.

DEFINITION

Loan modification is a long-term process wherein a lender makes changes in some of the terms and conditions of an unpaid loan because the borrower is unable to pay it. Loans are obtained by making an agreement between the lender and the borrower. This agreement contains the date or term on which the loan must be paid, the interest rate to be charged, and other terms and conditions agreed upon. Loan modification seeks to change these items to enable the borrower to repay the loan.

CHANGES MADE

Long Island Loan modification involves changing the following items in an agreement:

1. Term of payment

A borrower may not be able to repay the loan because the term agreed upon may be too short. For example, someone who borrowed $120,000 to be paid within a year at 3.3% per annum may find it difficult to pay up because this requires him to pay $10,000 per month. Long Island Loan modification allows for changes in the term of payment to give flexibility and allowance, making it easier for the borrower to manage his expenses while paying the loan.

2. Interest rate

Also, a borrower may not be able to repay the loan because the interest rate charged by the lender is high in relation to his financial capacity. For example, someone who borrowed $50,000 to be paid within two years at 6% per annum may be at a disadvantage, considering that the lending rate in the United States is at 3.3% per annum. Long Island Loan modification could involve changes in the interest rate to make it easier and less burdensome for him to pay his debt.

3. Mortgage/foreclosure clauses

Mortgage or foreclosure clauses are statements in a loan agreement that allow lenders to go after the property of the borrowers if they are unable to pay the loan. Long Island Loan modification opens these clauses to minor adjustments, removing fears of having one’s property taken. In some cases, the modification removes these clauses to further entice the borrower to pay the loan.

EASIER WAY TO PAY LOANS

There’s no denying that loan modification seeks to make it easier for the borrower to pay his loans. It does not only allow the payment of loans; it also builds a stronger relationship between lenders and borrowers.