Freeze a Loan

How to Freeze a Loan

“Freezing a loan” usually does not mean terminating the obligation, but attempting to agree with the creditor on changing the repayment terms. We help:

• analyze the loan agreement;
• check the current amount of debt and calculations;
• prepare a request to the bank or microfinance organization;
• justify the need for payment deferral or restructuring;
• develop a proposal for a new payment schedule;
• conduct negotiations with the creditor;
• review the new terms proposed by the bank;
• document the agreed terms in writing;
• assess further risks if the creditor refuses to negotiate.

Possible options include:

• deferral of individual payments;
• reduction of the monthly payment;
• extension of the loan term;
• change of the repayment schedule;
• debt restructuring;
• change of the interest rate by agreement;
• revision of commissions or other payments;
• partial repayment of the debt according to an agreed schedule;
• another individual settlement option with the creditor.

The NBU defines restructuring as a change to the material terms of a previous agreement to ease the requirements imposed on the debtor due to financial difficulties; possible changes may include the interest rate, repayment schedule, fees, or partial debt forgiveness.

Stopping payments on your own is not a “loan freeze.” If the borrower can no longer follow the existing schedule, it is safer to contact the creditor in advance and try to change the terms of the obligation in writing.

Review of the Loan Agreement and Debt

The lawyer reviews:

• the principal amount of debt;
• the interest rate;
• commissions;
• penalties and other charges;
• the payment schedule;
• conditions for early demand of the debt;
• the procedure for changing the agreement terms;
• the borrower’s rights and obligations;
• terms for dealing with overdue debt;
• other provisions that may be relevant to negotiations.

It is also advisable to check the debt calculation separately if overdue debt has already arisen. Consumer credit legislation regulates not only the granting of credit, but also the procedure for settling overdue debt.

Request to the Bank for Payment Deferral or Restructuring

The request may include:

• the borrower’s details and loan agreement information;
• the reason for deterioration of the financial situation;
• the current level of income;
• circumstances preventing compliance with the existing schedule;
• the proposed restructuring option;
• the amount the borrower can realistically pay;
• a request for payment deferral or a revised schedule;
• other material circumstances.

It is advisable to attach documents confirming the borrower’s circumstances. These may include:

• income documents;
• evidence of reduced income;
• documents confirming termination of employment;
• documents confirming additional mandatory expenses;
• other materials confirming deterioration of the financial situation.

The National Bank has previously expressly recommended that borrowers who cannot make loan payments contact their financial institution regarding restructuring and confirm the relevant financial circumstances with documents.

What Terms the Bank May Offer

The bank may agree, for example, to:

• a temporary reduction in the monthly payment;
• postponement of part of the payments;
• extension of the loan term;
• a new repayment schedule;
• changes to certain commissions;
• a different debt repayment procedure;
• partial cancellation of certain charges by agreement;
• another individual restructuring option.

The specific terms depend on the creditor, the agreement, the borrower’s payment history, the current debt, and the borrower’s financial capacity. In certain special cases, legislation provided for mandatory restructuring of specific categories of foreign-currency consumer loans under statutory criteria, but those rules cannot automatically be applied to every loan.

Loan Payment Holidays

Loan payment holidays may be used as one option for temporarily reducing the borrower’s current financial burden. This may include:

• deferral of principal payments;
• temporary reduction in payment amounts;
• postponement of individual payments to a later period;
• temporary adjustment of the repayment schedule.

At the same time, it is important to check what happens to interest during this period. Loan payment holidays do not always mean:

• complete suspension of interest accrual;
• debt cancellation;
• cancellation of penalty charges;
• complete exemption from all payments;
• automatic amendment of the agreement without written documentation.

The NBU has emphasized that loan holiday terms are determined by specific financial institutions and that introducing such arrangements is not a universal obligation of every creditor.

How to Properly Document New Loan Terms

If the parties agree to change the loan terms, written confirmation should be obtained. Depending on the situation, this may be:

• an addendum to the loan agreement;
• a new payment schedule;
• a restructuring agreement;
• an official decision or proposal from the bank;
• another document recording the parties’ new obligations.

Before signing, it is necessary to check:

• the new monthly payment amount;
• the total loan term;
• the interest rate;
• the new total amount payable;
• commissions;
• penalty consequences of future late payments;
• the procedure for early repayment;
• what happens to the debt already accrued;
• other additional obligations of the borrower.

A lower monthly payment does not always mean a lower total cost of the loan. Before signing a restructuring agreement, it is important to check the final amount of obligations.

Can a Credit Card Be Frozen?

It may be possible to block the card as a payment instrument through the bank, but this does not automatically terminate the debt arising from the already used credit limit. If there is already debt on the credit card, the following issues must be addressed separately:

• repayment of the used credit limit;
• interest accrual;
• mandatory minimum payments;
• overdue debt;
• the possibility of restructuring the card debt.

Therefore, blocking the card itself and settling the debt are different actions.

What to Do If the Bank Refuses Restructuring

After a refusal, it is necessary to:

• obtain and analyze the bank’s position;
• review the loan agreement again;
• check the accuracy of the calculations;
• assess whether another proposal can be made to the creditor;
• determine the risk of court recovery;
• check whether enforcement documents or proceedings already exist;
• assess the borrower’s overall debt burden.

For a person with several large debts, simply deferring one loan may not solve the problem as a whole. In that case, the entire debt situation should be analyzed.

When to Contact a Loan Lawyer

It is advisable to contact a lawyer if:

• the bank is already charging significant overdue amounts;
• the creditor demands early repayment of the entire debt;
• negotiations with the bank are not producing results;
• you doubt the accuracy of the debt calculation;
• the debt has been transferred for collection;
• a collection company is contacting you;
• the bank has already filed a claim in court;
• enforcement proceedings have been opened;
• you have several loans and the overall debt burden has become critical.

When settling overdue debt, creditors and collection companies must comply with statutory requirements and may not mislead the consumer regarding the debt, its legal consequences, or restructuring options.

Cost of Legal Assistance with Loan Restructuring

The price is affected by:

• the number of loan agreements;
• the amount of debt;
• the existence of overdue payments;
• the complexity of the debt calculation;
• the need to prepare a request;
• the number of negotiations with the creditor;
• the need to analyze restructuring terms;
• the existence of a court dispute;
• the existence of enforcement proceedings;
• the required scope of legal support.

For one client, reviewing the agreement and preparing a request to the bank may be sufficient. In another situation, full negotiation support, review of restructuring terms, and protection in court or enforcement proceedings may be required.

Common Situations When a Borrower Wants to Freeze a Loan

Conclusion

“Freezing a loan” usually means reaching an agreement with the creditor to change the existing payment schedule, defer payments, or restructure the debt. Stopping payments unilaterally does not terminate the loan obligation and may increase the overdue amount. Therefore, in the event of financial difficulties, it is advisable to review the agreement and calculations, prepare a reasoned request to the bank, and document any new terms in writing.

Unable to follow your current loan payment schedule? Submit a request on the Prikhodko & Partners Law Firm website. A lawyer will review the agreement and debt, prepare a request to the bank, and help negotiate restructuring or payment deferral.