Do you need to reorganise your payments?


We can all agree that contacting your bank to tell them that you are struggling to pay off your debts is not a pleasant experience. However, it is the courageous and responsible attitude to take towards your finances, and can help avoid further unpleasantness, such as building up late-payment interest or ending up on a bad debtors’ list. No one is immune to life’s unexpected twists and turns, which can significantly affect your finances.

Should it come to it, your bank can provide a number of options:

  • Renegotiating the terms and conditions of the existing loans which you are struggling with: lower repayments, payment holidays, reduced interest rates, and more. Such amendments can be formalised in private contracts, although, in some cases (typically mortgage loans), they may need to be set out in public deeds.
  • Debt restructuring, which entails cancelling the existing contracts and arranging one or more new agreements. Be aware that the early cancellation of contracts may incur a penalty or fee, although this should also be agreed in the new negotiations with your bank.

These operations may entail notary, registrar and agency fees.

There are firms that specialise in such negotiations with banks. These firms can provide consultancy in exchange for a fee, and are particularly useful if you have debts with several lenders.

Analyse thoroughly the terms of the negotiated agreement. It often happens that the number of monthly repayments and the total monthly repayment amounts are reduced, but this does not mean that the bank is forgiving a portion of your debt. It simply means that the repayment schedule has been extended, and in some cases the total interest payable over the life of the loan will be higher. This is neither good nor bad, we merely bring it to your attention; sometimes it is the only way to make your payments manageable and get your finances on a sound footing.

Below are a few useful tips for this process:

  • Be honest with your bank and/or the adviser that helps you. If you conceal information, you may not be offered the best option for your needs.
  • Be realistic with yourself about your ability to manage this new debt in the future: you want a permanent solution to the problem, not to find yourself in a similar situation further down the line.
  • Analyse and understand each of the options presented to you. Do not be left in any doubt regarding the new transaction.
  • Do not make any commitments that you know you will be unable to fulfil. And when you do make a commitment, deliver on what has been agreed.
  • Reflect on how you have managed your finances to date. Perhaps you need to adjust your spending and income in response to new circumstances.

Current legislation provides for certain cases of debt renegotiation and restructuring. You should check to see whether these apply to you:

  • Measures adopted in relation to the situation prompted by the COVID-19 pandemic.
  • Measures set out in the Code of Good Practice.
  • Law 25/2015 of 28 July 2015 on the fresh-start mechanism, reduction of the interest burden and other social measures.
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