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Sunday 11 December 2016

Five steps to tackling your debt problems with the bank repayments

Published 26/10/2010 | 05:00

If you are struggling with loan repayments or believe you are in danger of missing repayments in the future, the worst thing you can do is ignore the problem for as long as possible.

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There may even be a temptation to walk away from a mortgage or loan on a property or investment that is now worth considerably less than the total amount outstanding on the loan.

Former banker David McHugh's advice is simple: don't walk away.

Despite the talk you'll hear of people leaving the keys behind, Mr McHugh says that farmers can't just waltz off into the sunset and expect the bank to forget about them over time.

"They will come after you and you probably have assets tied up in land," Mr McHugh said. "It's unlikely you will come out [on] the right side of that equation."

The flip side of this is that farmers are much less risky prospects than the vast majority of clients for banks these days. They want your business.

The question is what should you do to stay on the right side of the law and at the same time meet loan repayments that you just don't have the money for?

According to Mr McHugh, there are a number of strategies available to you in this case.

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  • Get help

It sounds obvious but, when you are in a hole, the last thing you want to hear is somebody telling you that you should shell out more money on professional fees. But Mr McHugh says that it does not necessarily need to be an accountant.

"Sometimes a family friend or neighbouring farmer will be able to give you a steer and map out a plan," he said. "There are even people who are semi-retired and interested in helping people out for little or no fee at all. All you are trying to figure out is how much you can comfortably cope with in terms of repayments."

  • Lengthen the loan

Once you've calculated what you can actually cope with, you need to figure out a way to get the bank to reduce the repayments required. The easiest option for both parties is to lengthen the term of the loan.

Don't be afraid to ask the bank to double the length of a loan term, even for long-term existing loans of over 20 years.

Unfortunately, many situations won't be solved by simple solutions like this.

  • Switch to interest only

This was common during the good times when banks were handing out loans like confetti. But you'll need to push harder now to convince your banker to switch to this arrangement.

You'll be required to show that something will change in the short to medium term that will allow you to switch back to paying down the capital repayments in the future.

  • Bullet payments

These are one-off payments arising from the sale of an asset such as a site or stock.

Banks are less favourably disposed to this type of an arrangement since it lacks the predictability that they long for.

  • Loan write-down

This is the nuclear option from the banks' point of view. While few of these have been agreed with banks so far, finance experts view this as somewhat inevitable over the next few years as the banks get around to tidying up the loan books of their smaller clients.

Back in the last crunch during the 1980s, Tom Clinton said that he secured write-offs of anything from five to 95pc of the value of his loans. "I never settled for anything less than £10,000," he claimed.

Remember, at the end of the day, the ultimate aim of any lender is to get their money back. This means, in most cases, they will be prepared to work with customers to improve the possibility of being repaid.

A viable workable proposal as a solution is always preferable to a banker compared to going through the legal process.

The important thing, according to Mr McHugh, is that you talk to your bank before they talk to you.

"Never forget that whatever the situation, it could be worse and it can be dealt with."

Irish Independent



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