When faced with the dilemma of capital turnover, loan extension has become an important choice for individuals and businesses. This article provides an in-depth analysis of the concept, conditions, process and dual value of the rollover to borrowers and financial institutions, and makes an in-depth discussion with actual cases.
Whether it is an individual or a business, after borrowing money, you need to repay the principal and interest, but if you reach the maturity date, you find that your short-term capital turnover is not open, and it is about to be overdue, how can you deal with it?
This is when it comes to rollover, so what is rollover?
1. What is a rollover?
From the global business process, it can be seen that rollover is a kind of post-loan adjustment and a common mode in credit, so what is rollover?
Loan extension means that when the borrower is unable to repay the loan on time, the borrower applies to the lender to extend the repayment period of the original loan, and the repayment time is extended after approval. To put it simply, I can't repay the money when it expires, and I negotiate with the bank whether I can repay the loan a few days later, and after the bank assesses the risk, it says yes, but the interest of these days is calculated separately, and the original maturity date is extended after the two parties reach an agreement.
The conditions for the extension include, but are not limited to: production and operation are basically normal, there is a willingness and ability to repay, the borrower takes the initiative to apply and the financial platform agrees, and the risk can be mitigated. In addition, rollover operations are subject to regulatory requirements and bank credit policies, for example, applications must be made before the loan expires and system operations must be completed before the loan expires.
In practice, it is generally necessary to reduce the risk exposure before applying for an extension, that is, you cannot owe interest on the loan and reduce part of the loan principal. At the same time, for the extension of the loan, the security conditions cannot be reduced, the nature of the collateral cannot be changed, and the collateral can only be increased but not decreased, or it can remain unchanged. The guarantor can only increase, not decrease, or remain unchanged.
For example, the cumulative term of a short-term loan (loan term ≤ 1 year) shall not exceed the original loan term, the cumulative term of a medium-term loan (loan term > 1 year) shall not exceed half of the original loan term, and the maximum extension of a long-term loan shall not exceed 3 years. For personal loans, the cumulative extension period shall not exceed the original loan term, or the sum with the original loan term shall not exceed the maximum loan term specified in the loan type.
2. What happens if you don't rollover?
1. Calculate liquidated damages
Liquidated damages are a certain amount of money that needs to be paid to a party to a contract when it fails to perform its obligations under the contract or violates the terms of the contract. The liquidated damages shall not exceed 4 times the one-year loan interest rate of the People's Bank of China, and generally less than 24%.
2. Affect the credit investigation of the People's Bank of China
The platform will report the overdue information to the credit information center of the People's Bank of China after a certain grace period. For example, some banks give customers a grace period of three days, and if the repayment is made within the grace period, it may not be considered overdue. However, if the payment is not made after the grace period, the overdue information will be recorded on the personal/business credit report, which will negatively affect the individual's credit score.
The severity of overdue records varies depending on the impact on the credit investigation of the People's Bank of China. Minor delinquencies, such as 1-30 days overdue, may be marked as a minor credit defect, while severe delinquencies, such as more than 90 days or 180 days overdue, will be considered serious credit problems and may cause individuals or businesses to experience difficulties in applying for loans, credit cards, or other financial services in the future.
3. Legal consequences, and affect the credit line of the enterprise, may be blacklisted
If the overdue period is longer or the amount is large, the financial platform may take legal action to recover the debt. This may include lawsuits, property seizures, or other legal means that further increase the borrower's financial and legal risk.
At the same time, if the borrower is overdue, it may affect the credit line of the enterprise, and at the same time, it may be blacklisted, causing individuals or enterprises to encounter difficulties in applying for loans, credit cards or other financial services in the future.
3. What are the common exhibition scenarios?
1. Risky scenarios
- Disputes among borrowers, reluctance to repay, and negative impacts.
- Operational difficulties: Corporate borrowers may not be able to generate sufficient cash flow to repay loans due to reduced market demand, rising costs, increased competition, etc., resulting in a decline in operating income.
- Tight cash flow: Borrowers may have a short-term cash flow crunch due to large one-time expenses (such as equipment upgrades, tax payments, emergency expenses, etc.), and need to temporarily reduce the repayment pressure.
- Natural disasters or unexpected events: Natural disasters (such as floods, earthquakes, typhoons, etc.) or unexpected events (such as factory fires, traffic accidents, etc.) can cause business operations to be interrupted or personal income to be lost, and it will take time to recover.
- Project extensions: For borrowers who rely on the completion of a specific project to repay their loans, if the project schedule is delayed for various reasons, it may be necessary to extend the period to wait for the completion of the project and the return of funds.
- Policy changes: Changes in government policies (e.g., tax policies, industry regulation, etc.) may affect the profit model and cash flow of enterprises, and repayment plans need to be adjusted to adapt to the new environment.
2. Non-risky scenarios
- The original billing period is not set properly.
- The borrower fails to make the payment as agreed, but the extension period does not exceed 30 working days.
- Force majeure causes the borrower to postpone payments, but it is clear that the new payment time will be made.
4. The value of the rollover to the financial platform
1. Risk management: Rollovers can help financial platforms manage credit risk more effectively. By carefully assessing the borrower's repayment ability and future prospects, financial platforms can choose to offer rollover services to borrowers who have the potential to recover their solvency, thereby avoiding the immediate risk of loan default.
2. Asset quality maintenance: Through the rollover, the financial platform can change the loan from overdue to normal state, thereby maintaining its asset quality. This helps the financial platform maintain a good financial position and credit rating, while also reducing losses due to bad debts.
3. Customer relationship management: Rollover is a way for financial platforms to maintain long-term relationships with customers. Providing support to borrowers when they are struggling can help strengthen customer loyalty and satisfaction. In the long run, this good customer relationship can translate into more business opportunities and higher customer retention.
4. Liquidity management: Rollovers can provide financial platforms with more time to adjust and plan their liquidity. By extending the repayment period of loans, financial platforms can better match the maturity structure of assets and liabilities and optimize the efficiency of the use of funds.
5. Market competitiveness: In the highly competitive financial market, providing rollover services can be used as a differentiated competitive strategy for financial platforms. With flexible lending solutions, financial platforms can attract and retain borrowers who are looking for financial flexibility.
6. Regulatory compliance: In some cases, regulators may encourage financial platforms to offer rollovers for specific types of loans to support economic development or respond to economic crises. By following regulatory guidance and policies, financial platforms can maintain a good regulatory relationship and ensure compliance for their business.
7. Social Responsibility and Reputation: In the face of economic difficulties or special events (such as natural disasters, epidemics, etc.), providing extension services to affected borrowers can demonstrate the social responsibility of the financial platform. This will not only help enhance the social reputation of the financial platform, but also promote social stability and economic recovery.
5. The value of the rollover to the borrower
1. Alleviate short-term financial stress: Borrowers may face short-term financial stress due to market fluctuations, operational difficulties, or other unforeseen circumstances. A rollover can provide the borrower with additional time to adjust their finances, thus avoiding default and a possible financial crisis.
2. Avoid damage to credit history: Failure to repay on time may result in damage to the borrower's credit history, which in turn will affect their future financing ability and credit profile. With a rollover, borrowers can avoid a record of late payments and protect their credit score and credit history.
3. Reduce the cost of default: Default not only results in credit damage, but can also incur additional liquidated damages, penalty interest, and legal fees. With a rollover, borrowers can avoid these additional costs, thereby reducing the financial burden.
4. Strengthen the cooperative relationship with financial institutions: Proactively communicate with financial institutions about the rollover needs and reach an agreement, which can enhance the cooperative relationship between borrowers and financial institutions. This good partnership may lead to more financing opportunities and more favorable loan terms for borrowers in the future.
Sixth, the business process of the extension
It can be seen that the extension period involves multiple business departments such as customers, risk control, marketing, operations, and finance, and the associated impact function modules include quotations, contracts, signatures, registrations, bills, and repayment plans.
So first of all, start by initiating an extension application and see what materials are needed for the business.
7. Initiate an application for extension
Generally, the application for extension is submitted by the client/account manager/client relationship, and the application information required is as follows:
1. Asset rollover: If the business is asset-based financing, then you need to edit the rollover date of the underlying asset first.
2. Change: If the asset rollover date is greater than the registration date, it is necessary to synchronize the change of the registration information (no change is initiated here, only displayed).
3. Change of financing information: There are generally two situations:
- Rollover + quotation change, the rollover is generally accompanied by an increase in risk, and the quotation during the rollover period will be re-agreed in combination with risk assessment. In this scenario, the applicant generally needs to fill in the extension date, collection method, and effective date of adjustment.
- Only the quotation is changed, and after the underlying underlying is extended, the financing itself may not be extended, but there is a quotation change. In this scenario, the applicant generally needs to fill in the adjusted rate, interest collection method, and the effective date of the adjustment.
4. Contract signing: the extension, rate, and collection method are changed, and a new contract needs to be designed.
The application screen is as follows:
8. Risk control approval (change of quotation)
The risk control approval mainly confirms: whether the risk is adjusted, the risk bonus, and the quotation information.
- Risk control assessment, confirm the reasons and risks of the extension, assess whether to include customers in the blacklist/greylist, control the processing of agent collection and payment accounts, etc.
- Adjust the quote and adjust the quote based on the evaluation results.
9. Market approval (confirmation of quotation)
The main confirmation content of market approval: negotiate with the customer whether to accept the quotation, if not, adjust the quotation, and initiate the quotation adjustment sub-process.
10. Operational approval (contract preparation, bill preparation, and change of registration)
At the operation node, the rollover process has passed the risk control and market, and at this time, preparations for making contracts, pushing bills, and changes in the registration begin.
1. Make a contract
After the rollover, the quotation and collection method will change, and the document will need to be re-signed.
2. Push bills
Based on the rollover quote information, the fee bill will be re-pushed.
3. Changes in the Register
If the extension time exceeds the registration time, it will also involve the change of the registration.
4. Financial Approvals
The financial approval mainly confirms the customer's payment data.
5. Process archiving
After the platform and the customer complete the signature, the process will be archived and the repayment plan will be updated synchronously.
11. Frequently Asked Questions
1. What will be affected if the customer fails to initiate the rollover in time and is overdue?
1. Increase in penalty interest: After overdue, the bank will start to calculate the penalty interest according to the terms of the loan contract, and the calculation of penalty interest is usually calculated according to the multiple of the loan interest rate, which will increase the financial burden of the borrower.
2. Impaired credit history: Late repayment will be recorded in the personal credit report, usually in the form of "bad record", which will have a negative impact on the borrower's credit score.
3. Risk of legal proceedings: Late repayment may lead to legal action by banks or other lending institutions, including but not limited to collection, litigation, etc., which will bring additional legal risks and costs to the borrower.
4. Collateral risk: If the loan has collateral, overdue may result in the collateral being taken by banks or other lending institutions to take legal measures, including auctioning or selling the collateral to recover the amount owed.
2. What should I pay attention to in the extension of risk control audit?
The risk control approval mainly confirms: whether the risk is adjusted, the risk bonus, and the quotation information.
1. Risk control assessment, confirm the reasons and risks of the extension, assess whether to include customers in the blacklist/greylist, and control the processing of agent collection and payment accounts.
- Whether the value of the asset is lost
- The reason for the extension, whether the new repayment time can be determined, and the degree of customer cooperation
- When a third party collects money, whether the account is changed to an agent collection and payment account
- Comprehensively the number and duration of rollovers, assess risks and quotes
- Whether the current customer's business status and past credit are normal
2. Adjust the quotation and adjust the quotation based on the evaluation results
3. If there is unpaid interest, fees, principal and liquidated damages, and the customer partially repays the loan, which principal/interest/fee will be preferentially reversed, and why?
The common ones are to preferentially write off the principal, the principal account: factoring receivable, which is an asset, which directly affects the balance sheet, and the interest account: which is income, which affects the income statement.
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