Being in debt is always a source of distress, especially when one cannot make payments on time. The debt continues to accumulate interest day by day. The best way to find a way out is to stay calm, face the reality, and think of solutions. TerraBKK would like to explain the process of requesting a reduction in outstanding interest as financial knowledge for all debtors, regardless of whether they are currently facing issues or not. The details are as follows:

Initially, TerraBKK would like to explain the types of interest rates, which can be categorized into two types based on the nature of the loan amount: 1. Long-term loans (Term Loan) are loans with a duration of more than one year, intended for investment in fixed assets such as houses, large machinery, or land. The interest used to calculate these loans is referred to as MLR (Minimum Loan Rate). 2. Short-term loans are loans with a duration of up to one year, intended for working capital to enhance business liquidity, such as overdraft facilities (O/D) or promissory notes (P/N). The interest used to calculate these loans is referred to as MOR (Minimum Overdraft Rate). The characteristics of interest rates can vary, such as MLR-1% or MLR+2.50%, depending on the regulations set by each bank, which may adjust based on the risk level or the collateral value of the borrower.

Calculating Outstanding Interest

To request a reduction in interest, one must calculate the outstanding interest as follows: 1. Calculate the amount of outstanding interest by taking the outstanding principal and calculating the daily interest, which is outstanding principal x (annual interest rate % / 365). Once the daily interest is determined, multiply it by the number of days overdue, or you can also request the details of the overdue status from the bank. 2. Outstanding interest for 3 months (counting from the date of the first missed payment until the end of 3 months) cannot be requested for reduction because it is accrued interest, which would immediately result in an accounting loss if this interest were to be reduced. Therefore, banks typically do not reduce this amount. 3. Calculate the outstanding interest that can potentially be reduced, which is the difference between points 1 and 2. This is because this amount of interest has not yet been recorded in the accounting system, thus not affecting the bank's financial statements.

Characteristics of Debtors Who May Request a Reduction in Outstanding Interest

If a bank is willing to consider reducing outstanding interest, it would likely be in cases of high-risk debtors whose debt levels are close to or exceed the value of their collateral, indicating a potential for default. The bank must address the parts that can still be managed. For example, if a debtor has a loan of 1.2 million baht at an interest rate of 10% per year, the annual interest payment would be 1.2 x 10% = 120,000 baht, or 10,000 baht per month (=120,000/12). If the collateral is land valued at 1.2 million baht, and the outstanding interest for 18 months totals 180,000 baht (30,000 baht for the first 3 months, and 150,000 baht for months 4-18), the total debt level would be the principal plus the outstanding interest for 18 months = 1,200,000 + 180,000 = 1,380,000 baht. Therefore, the collateral does not cover the debt = 1,380,000 - 1,200,000 = 180,000 baht. Characteristics of proposals that debtors might request for a reduction in outstanding interest to the bank could include negotiating to pay the outstanding interest for 3 months = 30,000 baht, after which they would start repaying the new principal of 1.2 million baht at the original interest rate, fully and without default, in exchange for a reduction of the remaining outstanding interest of 150,000 baht (interest from months 4 to 18).

Methods for Reducing Outstanding Interest

Debtors may propose two initial methods to negotiate with the bank: 1. Repay the debt under new conditions with the original bank. This is a step towards restructuring the debt, which will involve a debt restructuring agreement specifying various conditions. If the debtor can fully comply with these conditions, the bank would be willing to reduce the outstanding interest as a reward. 2. Pay off the entire debt and switch to a new bank. For instance, proposing to the bank to reduce outstanding interest that is overdue for more than 3 months, and then the debtor will immediately pay off the remaining debt. However, the value of the collateral must also be considered, as if the debtor has collateral worth less than the debt amount, the bank would be at a disadvantage. If it becomes a bad debt, the bank must set aside provisions for bad debts, which would affect the proportion of funds available for other beneficial uses. Thus, there is a chance that the bank may agree to negotiate with this debtor.

Debt Restructuring Strategies to Keep Your Home The difference between debt restructuring and debt negotiation is that debt restructuring may occur when a debtor realizes they cannot make payments and seeks to enter into a new agreement that is flexible and suitable for their monthly expenses, or requests refinancing with another financial institution without having missed any payments. In contrast, debt negotiation occurs when a debtor has not made consecutive payments for 3 months or more.

Fighting to Prevent Asset Seizure If the burden of mortgage payments reaches a dead end and debt negotiation cannot help, creditors may seek to seize assets for sale, and the matter may reach the court. Can a debtor still find a way to keep their home? The answer is that there are some options to fight, but whether they will succeed depends on the specific circumstances.

Thank you for the valuable information from the book "The Weeping Creditor: How to Restructure Debt"