When it comes to managing debt, many terms and concepts can be confusing. Two of these terms are loan write-off and loan waive-off. While they may sound similar, they refer to very different outcomes for borrowers and lenders. In this article, we will delve into the nitty-gritty details and shed light on the differences between write-off and waive-off
Difference Between Write-Off and Waive-Off
| Parameters | Write-Off | Waive-Off |
| Impact on borrower | Write-off has no direct impact on the borrower, as the debt still exists but is not considered collectible by the lender or creditor. | Loan waiver provides relief to the borrower, as they no longer have to repay the portion of the loan that was waived off. |
| Impact on lender | Write-off results in a loss for the lender, as the debt that was declared uncollectible is removed from their books and is no longer considered an asset. | A loan waiver results in a loss for the lender, as they have to forgive the portion of the loan that was waived off. |
| Eligibility | Not applicable | Eligibility for a loan waiver is predefined and is allowed depending on various factors, such as the borrower's financial status, loan history, and the reason for the request. |
| Legal Consequences | The borrower may have to face several legal consequences. | No legal trouble arises |
What is a Loan Waive-Off?
Loan waive-off refers to the act of a lender forgiving or canceling a portion or all of a borrower's outstanding debt. That means the borrower is no longer obligated to repay the waived part of the loan. Loan waive-off is usually offered as a means of providing financial relief to borrowers who are facing difficulties in repaying their debt. It is a one-time action that can help the borrower get back on track and offer some breathing room to get their financial situation under control.
For example, suppose you have a loan of Rs 10,000 with a lender. You have fallen behind on your payments due to financial difficulties, and the lender decided to offer you a loan waiver. That means the lender will forgive a portion of your debt, say Rs 5,000, and you are only obligated to repay the remaining Rs 5,000. Borrowers struggling to make ends meet may benefit greatly from this act of loan forgiveness.
Process of Loan Waive-Off
- Eligibility: To be eligible for a loan waive-off, you must meet the lender's criteria for financial hardship. This can include unemployment, illness, or other circumstances that make it difficult for you to repay the loan.
- Application: You must submit a loan waiver application to the lender. This application should include information about your financial situation as well as the reasons why you are unable to repay the loan.
- Review: The lender will review your application and determine if you qualify for a loan waive-off. If you are, they will provide you with an offer detailing the terms and conditions of the loan waive-off.
- Acceptance: If you accept the offer, you will need to sign a loan waive-off agreement and follow the terms outlined in the agreement. This may include making a lump sum payment or entering into a repayment plan to repay a portion of the loan.
- Repayment: Once you have signed the agreement, you will be expected to make payments as outlined in the agreement. If you default on the agreement, the lender may take legal action to recover the debt.
Remember, the decision to grant a loan waiver is completely at the discretion of the lender and may also depend on the terms and conditions of the loan agreement.
Also Read: Ways to Use a Personal Loan to Pay off Your Debt Faster
Reasons for the Loan Waive-Off
There are several reasons why a loan waiver might be granted to you. Some of the common reasons include:
- Financial hardship: If you are facing financial difficulties due to unemployment, medical expenses, or any other reason, the lender might consider a loan waive-off.
- Natural disasters: In case of natural disasters like floods, earthquakes, or hurricanes, the lender might grant a loan waiver as a relief measure.
- Loss of collateral: If the collateral for your loan, such as a property, is destroyed or significantly devalued, the lender might consider a loan waiver.
- Loan term alteration: If the loan terms have changed, such as an increase in floating interest rates, the lender might agree to waive off part of the loan.
- Government policies: In some cases, the government might announce a loan waiver program for a specific sector or category of borrowers.
What is a Loan Write-Off?
A loan write-off occurs when a lender declares a portion of a borrower's outstanding debt to be uncollectible and records it as a loss on their books. This usually happens when the borrower is unable to repay the loan, and the lender determines that recovering the debt is unlikely. Write-offs can be partial or total, and the lender will usually only write off the debt after all collection efforts have failed.
Loan write-offs are common in the lending industry. They can significantly impact the lender's financial statements because they reduce the company's assets while increasing its liabilities. Furthermore, write-offs can have a negative impact on a borrower's credit score because they indicate that they have defaulted on a loan.
Process of Loan Write-Off
Here is how the loan write-off process works:
- Determination of loan default: The first step is determining if the borrower has defaulted on the loan. That means the borrower has failed to make loan payments for a specified period as stated in the loan agreement.
- Collection efforts: The lender will try to recover the outstanding loan amount through collection efforts, such as sending reminders, making phone calls, and sending demand letters.
- Write-off decision: If the collection efforts do not result in the recovery of the loan, the lender may decide to write off the loan. That means the lender considers the loan a loss and will no longer pursue further collection efforts.
- Accounting entry: The write-off is recorded as a loss in the lender's financial statements. This reduces the lender's assets and increases their liabilities.
- Notifying the borrower: The lender must notify the borrower that the loan has been written off and that there will be no further collection efforts.
Please note that writing off a loan does not absolve the borrower of their obligation to repay the loan. The lender may still seek to collect the debt through other means, such as wage garnishment or selling the debt to a collection agency.
Reasons for Loan Write-off
There could be several reasons why your lender has written off your loan as an individual. Among the most common reasons are-
- Defaulter: If you have failed to make timely loan repayments, your lender may write off the loan as a bad debt.
- Bankruptcy: If you have declared bankruptcy, your lender may write off the loan as uncollectable.
- Insufficient collateral: If you have provided collateral to secure the loan, and the value of the collateral has fallen below the loan amount, your lender may write off the loan.
- Death: In the event of your death, your lender may write off the loan if the estate does not have enough assets to cover the debt.
Also Read: Consequences Of Non-Payment Of EMI And Ways To Avoid It
Conclusion
These were the major differences between write-offs and waivers. To summarize, a loan write-off is an act of declaring a loan uncollectible, which means the lender writes off the debt as a loss. On the other hand, a loan waive-off means relieving a borrower of their obligation to repay a loan. That means the lender has agreed to forgive the debt, and the borrower is no longer obligated to repay it. However, your credit score is compromised in both scenarios.
Frequently Asked Questions
1. Is loan waiver good or bad?
The answer to whether a loan waiver is good or bad depends on various factors like economic context, implementation, and long-term effects.
2. What is an example of a loan waiver?
An example of a loan waiver could be a government program that forgives agricultural loans for farmers facing financial hardship.
3. Why were loans waived off?
Loans are sometimes waived off by governments or lenders to alleviate financial burdens on individuals or sectors facing economic challenges or crises.
4. Does loan waiver affect credit score?
Yes, a loan waiver can potentially affect a borrower's credit score, depending on how it's reported by the lender and credit bureaus.
5. Can we reject the loan after sanction?
Yes, it's possible to reject a loan after it has been sanctioned, but the process and potential consequences may vary depending on the terms agreed upon.
