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Approach your bank before defaulting on your payments

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 installments. From personal experience of 22 years as a Senior Credit, 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 personal banker. You may be worried about talking to the bank. Hence, your first move should be to speak to your bank if you’re going through financial difficulties. It is not advisable to run away from your debts.

Your banker understands that due to general increases in the cost of living, people are finding it increasingly difficult to keep up with their loan installments. To add to the trauma, people are also finding it difficult to sell their properties to get out of debt, due to the general slowdown in the economy.

Hiking interest rates and increasing the cost of borrowing have depressed living standards. Everyone feels the squeeze when inflation is on the rise and so the pressure on the Bank of Namibia to manage inflation has grown exponentially. That could create its own feedback loop, driving prices higher. This reality is frightening and potentially becomes very dangerous for the credit records of consumers. But before you throw in the towel completely talk to your bank manager and make an appointment to see him or contact him telephonically to discuss with him 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 who is making the decision on whether to help you or not is also human and will probably do everything in his or her 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 splitting banks. Consolidating your finances into one place can make managing your money much easier. It is not wise to migrate to another bank and 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 sown. One other thing that happens is the continuous addition of late fees and other additional charges. These together hike the debt to an even higher amount, which is of course even harder to pay off. This means that if you try to avoid debts by moving away, you may just be allowing the bank to charge you higher and institute legal action.

Furthermore, when approaching the bank, you must first establish exactly what the extent of your financial difficulty is 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 come back with a counterproposal on how to sort out 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.

Money worries don’t go away if we ignore them, they usually get worse. So, talk to your personal banker if you cannot pay and see if you can come up with an alternative arrangement. There are many options 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 rapidly rising interest rates. an amicable solution through negotiation is always preferred. You can negotiate for either one or a combination of any debt consolidation, or debt restructuring. If you can then show that you are experiencing financial challenges as a direct result of Covid or the higher interest rates, you will be eligible for payment holidays. The bank will then, on a case-by-case basis, assist with a suitable payment holiday that is 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.

Debt consolidation and debt restructuring are effective ways to tackle debt. Debt consolidation works by combining all your existing loans into a single, larger debt loan. In effect, 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 installment. 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 versus your 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 of installments due to be paid, or both. Debt restructuring can be a win-win for clients because the business avoids bankruptcy. Therefore, taking a payment holiday during the term of your loan does not change your monthly installment amount, but the term is extended to take into account fees and interest that accrue during the grace period. In the end, the payment holiday will cost you more, but you will have gained immediate relief from a constrained financial position.

To this end, to negotiate with the bank from a position of strength and enhance your credibility, it’s essential that you identify the problem, take responsibility for it, and propose a reasonable solution. This will immediately impress the bank, and it will be 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.


 

About The Author

Josef Sheehama

Josef Kefas Sheehama has more than 21 years banking experience serving as Manager Credit, Branch Manager and now Centralize Credit Head Office at Bank Windhoek. He holds a Certified Associate Institute Bankers CAIB (SA), Associate Institute Bankers AIB(SA), Chartered Banking Professional CHBP (SA), B Com Banking, B Com Law, Postgraduate Islamic Finance and Banking, MBA and an LLB degree. Also founder of church since 2009. He is an independent Economics and Business Researcher. Authored more than 100 articles in Economics and Business. Served on Northwest University panel (Green Hydrogen). His MBA thesis published by the International Journal of Current Research (Exploring sustainable economic challenges and opportunities).