The bank may accept an extension of the initial loan period if the customer fails to pay the installments. Extending the loan results in a decrease in each of the next payments. Thanks to this, you can easily balance your home budget. However, this solution has a serious disadvantage. After its application, the customer must pay the bank more interest.
In addition to the higher interest, you will have to pay for the annex
Examples of the effects of extending the repayment period are presented as part of the following examples. They relate to two cash loans worth USD 15,000 and USD 40,000.
A person with a cash loan of USD 15,000 and a fixed interest rate (10.00%), after two years extends the original repayment period (60 months) by another 18 months.
The initial equal installment after taking into account the commissioned loan (4.00%) was USD 331.45. Until the extension the customer pays USD 5327.80 from the initial debt (USD 9 672.20 remains to be repaid). After changing the terms of the loan, the installment will amount to USD 232.08 (decrease by 29.99%).
Due to the extension of the repayment period, the sum of installments will increase from USD 19,887.00 to USD 20,487.12 (change by 3.02%). The client will have to pay an additional USD 33 (excluding inflation) for extending the loan period by one month.
A person with a cash loan of USD 40,000 and a fixed interest rate (9.50%), after one year extends the original repayment period (96 months) for another 24 months ce.
The initial equal installment after taking into account the credited commission (3.00%) was USD 614.33. Until the extension the customer pays 3612.56 dollars from the initial debt (36 367.44 dollars remain to be repaid). After changing the terms of the loan, the installment will amount to USD 517.56 (decrease by 15.75%).
Due to the extension of the repayment period, the sum of installments will increase from USD 58 975.68 to USD 63 268.44 (change by 7.27%). For extending the loan period by one month, the customer will have to pay an additional USD 179 (excluding inflation).
In the above examples, the total increase in interest expenses would be slightly smaller if the customer later decided (e.g. after four years) to extend the repayment period. Nevertheless, the results presented should be treated as an argument which testifies to the disadvantage of a longer repayment period. It is also worth remembering that the calculations made do not take into account any possible fees for drawing up an annex to the contract, changing the repayment schedule or restructuring the debt.
Fortunately, such fees for a cash loan are much lower than for mortgages
In the largest domestic banks, the cost of annexing the contract, restructuring the debt or changing the repayment schedule usually does not exceed USD 100 (see the table below).
The four analyzed banks charge a commission instead of a flat rate depending on the debt balance (see the table below). The said solution is not very beneficial for a customer who has a high value cash loan.
An interesting alternative to the debtor are credit holidays
The extension of the cash loan repayment period should be considered by those who, due to certain events (e.g. reduction of salary or illness of their loved ones) by debts time will have lower income. In such a situation, you must try to extend the repayment in advance. Negotiations with the bank will certainly be more difficult if the customer pays several installments late. It is better not to allow this situation. It results in additional costs (e.g. interest for late payment and fees for sending reminders).
Bank customers who have increased expenses only for a certain period of time may consider taking advantage of a loan holiday or grace period in paying out capital installments. Such solutions are usually associated with long-term housing loans. In practice, they can also be used by people who have borrowed cash for consumption.
After a temporary deferral of all payments (credit holidays) or the principal part of the installment (grace period), the bank proposes to keep the original loan period or extend it for several months months. The latter solution results in a less noticeable change in installments and a larger increase in interest over the entire loan period.