What is debt reversal, why does the Credit Law not allow it, but currently, individuals and businesses still want to be reversed. Find out through the article below!
If you do not know what is a debt reversal loan ? How to reverse debt ? Is debt island illegal? The following concepts and analysis in the article will help you better visualize the bank debt island.
Debt reversal is a familiar concept used in the banking industry. If defined literally, debt reversal is understood as a form of disbursement of a new contract to repay the old contract.
According to the State Bank's regulations on lending capital, the form of debt reversal is strictly prohibited at credit institutions. Therefore, debt reversal is redefined as the mobilization of new capital to prepay part or all of the old debt previously borrowed.
Bank reversal can be understood as a way of transferring an old loan at the bank of an individual or business when it is due to repay but still does not have enough money to pay back into a new loan. The new loan will be borrowed from the same bank or from another bank.
The essence of the debt reversal form in the bank is that the bank will ask the customer to find a way to pay off the old debt, and then borrow a new amount of money, it can be said that this is essentially a continuation of the old debt. Many bank branches have been using this form of debt reversal to hide bad debts as well as restructure debt repayment terms.
According to the law, specifically Circular 39/2016/TT-NHNN, it is illegal to reverse debt at banks, except for 02 cases where debt reversal is allowed, including:
* Case 1:
Customers can reverse debts at credit institutions when using the amount of the new loan to pay interest arising in the process of construction and construction of which the interest cost of the loan has been calculated in the previous period. construction cost estimates have been licensed or approved by competent authorities in accordance with law.
* Case 2:
Customers are entitled to a loan reversal when using the new loan amount to pay for debts in 3 cases such as business loans; the loan term must not exceed the term of the old loan; loans that have not yet been restructured.
The debt reversal will partly reduce pressure on businesses and banks. Normally, loans from businesses are mainly for business operations. However, the business contains many risks that make businesses unable to pay debts on time, thereby affecting both the business and the lending bank.
● For banks: once a business fails to pay its debts on time, the bank will have to increase the budget for risk provisioning and at the same time, the bank's available capital will gradually decrease, making lending dropped sharply, leading to a decrease in profits as well.
● For businesses: businesses that do not pay their debts on time will lead to low credit scores, affecting future loans.
Because of the above reasons, the bank still allows debt reversal even though this behavior is strictly prohibited by law.
- For banks: reduce provision for risks, increase profits, reduce bad debts and overdue debts.
- For customers: Extending the debt payment term, reducing pressure, minimizing interest rates arising from overdue, not being converted into bad debts and helping businesses have more costs to maintain operations. business.
Besides the outstanding advantages, the bank debt reversal still contains great risks affecting businesses and individuals.
- Risk of civil and criminal liability
According to the issued circulars, borrowing capital to repay the debt at the same bank or another bank is not allowed by law. If violating, the borrower and the lending bank will both be responsible before the law.
- Risks from bad debt
A business cannot perform its debt reversal continuously and the debt reversal loan is likely to become a bad debt if the business continues to lose money and does not have money to pay the new debt rollover. get a loan.
Debt reversal causes part of bad debt and overdue debt to be hidden. This will prevent the management agencies from grasping the actual "health" situation of the business. Since then, they will not accurately reflect the economic situation of the whole economy today.
Although there are many potential risks, it is undeniable that the benefits that the bank debt reversal brings. Here is how to reverse bank debt for those in need.
Although the State Banks prohibit the form of debt reversal, however, there are still many organizations and individuals in the market that are circumventing the law. These people will use an additional intermediary facility to perform debt reversal.
One of the most commonly applied debt reversal methods today is to use other capital sources (can be borrowed from outside, hot loans , other forms of black credit , ...) to pay off the borrowed debt. old in the bank. Immediately after that, the bank will process a new loan application and the borrower will use this money to pay back the borrowed source.
With some businesses, businesses will often perform debt reversal using another legal entity in their name to borrow money at a bank. They then transfer this new loan to repay the old loan at the same bank.
In addition, there is another method of debt reversal that is often used, which is that the borrower transfers the old loan at one bank to another bank with a lower interest rate.
Besides the term "debt reversal", many people still do not understand the term " maturity " and confuse these two concepts with each other. Below, CashBerry will analyze and show the difference between debt reversal and maturity .
Many people mistakenly believe that bank debt reversal and bank maturity are the same, but these are two different concepts although they have some similarities.
In order to clearly distinguish between debt reversal and bank maturity, it is first necessary to clarify what the concept of maturity and bank maturity is.
● Maturity: is a concept commonly used in the financial field. Maturity refers to the termination date of a loan, deposit or insurance contract.
● Bank maturity: is a common activity in the banking sector with two forms: maturity of savings and maturity of loans.
Understanding what maturity is, we will compare and distinguish between bank debt reversal and bank maturity, specifically as follows:
* Note: The comparison below is a comparison between bank debt reversal and bank loan repayment (not saving savings).
- The purpose of bank debt reversal and loan maturity are both to extend the repayment period for an old loan that is due to be paid to the bank.
- Both of these activities are prohibited by the law of our country, as specified in Circular 39/2016.
- There is a fee for debt reversal and loan maturity, ranging from 0.3 - 0.7%/day with the total amount used for debt reversal or maturity.
- Debt reversal is done to turn an old loan that is about to be due for repayment into a new loan, in order to prolong the repayment period.
- Loan maturity is a form of bank re-borrowing when the old loan repayment period has expired but the debt has not yet been paid.
Businesses can perform debt reversal from banks when it is certain that the new loan agreement will be successful. If you feel that the probability of getting a loan from a new loan contract is too slim, it is best not to reverse the bank debt because the potential risk from this behavior is very large.
In short, debt reversal is a form of bank loan that is being applied by many people. Debt reversal has many benefits but also brings high risks for both the borrower and the bank. Therefore, learn and consider carefully about the forms and services of debt reversal on the market today.