MONEY CLINIC | If I negotiate to pay a smaller instalment on a loan, will it impact my credit later?

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A Fin24 user who is no longer working is looking to negotiate a lesser instalment and wants to know if this would affect her chances of acquiring a loan at a later stage. She writes: 

I have a building loan and would like to negotiate for a lower payment as I am no longer working but keen on meeting my obligations. I don't have cash flow after paying all my debts and living costs. My plan is to get another loan after a few months to boost my cash flow and assets. My question is, if I negotiate to pay a lesser instalment with my creditors, will that affect my chances of getting a loan later?

Clark Gardner, Founder & CEO at Summit Financial Partners responds: 

The first step would be to understand the circumstances that led to your not working. This is because there will usually be credit life insurance linked to a credit agreement that will pay out in the event of death, disability and retrenchment.

The second step is to facilitate a restructuring of your debt instalment. The concern would be the lack of income to maintain the newly agreed reduced instalment.

If your income is not predictable, one needs to work out what is possible and then plan for the worst case scenario.

Reducing your instalment does result in a specific credit bureau flag for certain credit providers which will mean access to further credit will be compromised. However, looking at your situation I would strongly recommend that you stay away from accessing additional debt to "boost" cash flow. You are certainly not in a position to make use of debt to "boost" your assets.

Perhaps put all this focus on increasing your income and reducing your costs to levels that are sustainable. If this is not possible you perhaps need to assess the need to sequestrate or enter into a debt intervention programme.  

Questions may be edited for brevity and clarity.

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