06 things to do when your loan is in arrears?

Think of a situation, where you obtained a loan, after some time you find It very difficult to pay the monthly instalments and the loan is in arrears now, the lending institution is coming behind you for the recovery of the loan and you have no way out to sort out this issue. This can be the worst situation in your life and most of us never want to fall in this situation.

Unfortunately, most of the businesses and individuals fall in this situation due to the financial mismanagement, over spending and fancy life style, some fall in to this situation due to the uncontrollable factors such as change in economic decisions, government regulations & natural disasters etc.

In this short read, I would like to highlight few options available to an individual or a business where you can comfortably overcome such situations without hampering your reputation or status of your business.

For the better understanding I have used following abbreviations

“Loan” – Any type of advance obtained from a Bank or a lending institution (housing loan, vehicle loan, leasing, business loan & credit cards etc.)

“Arrears” –   Any amount due over one month’s instalment.

Option 1 – Restructuring your loan

Lending institutions always welcome these request since this shows your reliability and your intention of repaying the loan.  The term restructure simply explains it self, if you feel like your monthly income is shrinking or your income going to get affected for few months you can opt in for this arrangement, it will help you to structure the repayment to match your income and you can increase the future payable as per your cash flow, or you can increase the period to suit your current income.


  1. You will not fall in to the arrears client list.
  2. Your crib report will not get bad remarks.
  3. Lending institutions will consider your future loan applications in a positive note.
  4. Save you from paying huge penal interest.
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Option 2 – Rescheduling your loan

You didn’t see it coming and you were already fallen in to the arrears position, this situation is bit of damaging to your reputation and asking for reschedule will save you from the mess. A reschedule is simply re arranging your repayment including the arrears and you have to work on your cash flow and convince the lending institution to reschedule the loan agreement rather than letting them taking recovery action.


  1. It is an opportunity to correct your crib records.
  2. Your relationship with lending institution will be saved.
  3. Your future loan applications will be considered in a positive note.

Option 3 – Takeover

A takeover is a good option when your lending institution is not willing to go with option 1 or 2, Simply get a balance confirmation from your current lending institution once you negotiated with a new lending institution to proceed with a takeover. But convincing a lending institution to take over a loan which is currently in arrears is bit of a difficult task. Credit card take overs are very common nowadays due to heavy competition. Takeovers are not only for arrears situation; you can avail best deals through a takeover.


  1. You can enjoy interest rate benefits.
  2. You can enjoy enhanced options such as repayment period extension and top-ups.

Option 4 – Settlement Plan

Settlement plans are good option to settle your accumulated arrears without straining much, this option is safe when you are in deep cash flow issues. Mostly offered for credit cards and working capital loans. Settlement plans are offered when a client is in serious arrears and he is willing to come for a settlement. Eg: outstanding of a credit card can be settled through a 12 month settlement plan.


  1. You can apply for new loans after the settlement plan ends.
  2. Your reputation is saved.

Option 5 – Moratorium options

Debt moratoriums are given by the banks and financial institutions on a very special case basis, some times debt moratoriums given based on government order. mostly when there is a big economic impact due to some natural disaster, pandemic and terrorism issues, best example is the Covid 19 period debt moratorium. When debt moratorium is given you, you don’t have to pay the instalments of the loan till the period ends, banks will give a repayment option once the period is over.

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  1. Your CRIB report is safe
  2. You can float the business during the tough period

Option 6 – Asset Disposal

This can be the most hurting situation, but if you are not corporative enough to lending institution and not willing to repay, then this might be the end, you will have to sell your asset and settle the loan or the lending institution will seize and sell it to settle their outstanding. But sometimes asset disposal is advisable as you have nothing to worry thereafter and you can buy a new asset when your financial position is back to normal.

Any lending institution will help the clients who are really willing to pay their debts, so talk to them when you are in a financial crisis, most of the lending institutions are professional enough to understand your situation and they will propose a suitable option overcome your bad debt situation.

Are you in debt trouble? Talk to us and we can help you to overcome any debt situation, we assure you best and confidential service to overcome debt related issues. The expert advice you can trust and rely on. Write to us on ask@advisor.lk


Kathirnathan Ragulan

Kathirnathan Ragulan is the founder of advisor.lk and a serial entrepreneur, Business Consultant, Wealth Tech entrepreneur, Personal Finance & Debt Management Expert with over a decade of banking and investment industry experience.

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