Refinansavimas and restructuring are two different processes. But people often think of them the same. A cash-starved company on the verge of getting bankrupt use it as a tool to make a last effort to keep the business afloat. However, this is not the case always. Whether a company is actually refinansavimas or restructuring often gets lost in the translation. Many finance professionals interchange the words when in reality they are different. Fundamentally, both refinansavimas and restructuring are the components of debt reorganization processes created to strengthen a person or company’s financial outlook. Debt refinansavimas is used to pay off a loan. It is initiating a new contract with better terms than a previous one.
Borrowers turn to dent restructuring during dire situations. Restructuring means altering an already existing contract. Lengthening the due date for the principal payment or modifying the frequencies of interest payments are the example of debt restructuring. Restructuring happens mostly in special circumstances. Restructuring happens mostly when borrowers are financially unstable. This is the reason it is a last-ditch strategy. Debt restructuring is a more extreme option. It is done when debtors fail to pay and negotiate to change an already existing contract. In debt restructuring, the debtor develops a situation with the creditor in which both parties are better off. If you fail to pay on time or in compromised financial stability, it is better to start a talk with lenders. Lenders don’t desire that borrowers fail to pay the loan or go bankrupt. Most of the time, lenders tend to agree with borrowers to restructure the loan, meaning waiving late fees, extending the time, or changing the frequencies of interest.
Debt refinansavimas is when a borrower applies for a new loan or a change in loan with better terms than the previous contract and it can be used to pay the previous obligation. A refinansavimas loan is cheaper and pays off the liabilities of an existing loan. Refinansavimas takes lesser time than restructuring. It qualifies easier and impacts the credit score positively when the original loan will be paid off. There are multiple reasons for which refinansavimas occur. These are reductions of interest rates, consolidation of debts, changing the structure of loans, and freeing up cash. Borrowers with high credit scores choose refinansavimas because it offers beneficial contract terms and lesser interest rates. It is actually replacing one loan with another. Debt refinansavimas is actually a change in interest rates. Debt refinansavimas allows borrowers to pay less amount as interest.
What is Vartojimo Kreditas?
Vartojimo kreditas is a personal debt taken to buy goods and services. A credit card is an example of vartojimo kreditas. Any personal loan could be labeled as vartojimo kreditas. However, unsecured debt to purchase everyday goods and services is also known as vartojimo kreditas. However, consumer debt is also collateralized consumer loans such as mortgage and car loans. Consumer debt is the other name of vartojimo kreditas.
Explaining Vartojimo Kreditas
Vartojimo kreditas is given by banks, retailers, and others to help consumers to buy goods immediately and pay off the loan over time with interest. Vartojimo kreditas is divided into two parts – installment credit and revolving credit.
Installment credit is given for a specific purpose and a defined amount for a particular period of time. Payments are made on a monthly basis in equal installments. Installment credit is used to buy big things like cars, furniture, etc. In installment credit, you have to pay lower interest rates compared to revolving credit. Purchase items are taken as collateral if the consumer fails to pay the debt.
A credit card falls under the category of revolving credit. Revolving credit is used for any purchases. Revolving credit means the line of credit is open. It can be used up to a maximum limit of repeated times as long as borrowers pay the minimum amount on a timely basis. It may never be paid in full as the consumer pays the minimum amount. The rest of the amount gets accumulated with interest from month to month. In revolving credit, the interest rate is relatively higher as it is not secured by collateral.
Advantages of Vartojimo Kreditas
Vartojimo kreditas allows consumers to get money as an advance to purchase products and services. In an emergency, vartojimo kreditas can be a lifesaver. Credit cards are easy and safe to carry. The world is becoming a more cashless society. People feel more comfortable using credit for large and small purchases.
Revolving vartojimo kreditas is a highly lucrative industry. Banks, financial institutes, departmental stores offer vartojimo kreditas.
Disadvantages of Vartojimo kreditas
The main disadvantage of vartojimo kreditas is that consumers have to pay money monthly basis along with the accrued interest rate.