A loan write-off is not the same as a loan waive-off. However, both these terms apply when there are bad loans involved. What are they? When borrowers cannot pay their loan due for whatever reason, lenders term them as bad loans or Non-Performing Assets (NPAs).
There are two ways in which lenders deal with NPAs or bad loans. They either write them off or waive them off. Doing this helps lenders balance their ledgers.
Before understanding the difference between loan write-offs and waive-off, let's understand them with the help of the following examples.
Loan Write-off Vs Loan Waive-Off
Now that you know what is loan write-off and waive-off, it’s time to understand the difference between the two.
A lender writes off a loan to equalise their balance sheets. It does not mean the loan is cancelled. The loan account is active, and lenders hope to make a recovery at a later date.
Here, a lender gives up all claims to a loan amount. It is a complete cancellation of a loan. This means the borrower is free from their debt.
Recovery
What happens when a loan is written off is that lenders may pursue recovery with the help of a legal entity. They can do this since the loan is not closed.
Lenders cannot pursue the loan amount once it’s waived off. They cannot seek assistance from any legal entities or third-party recovery agents to collect outstanding funds. In this case, the loan is closed.
Collateral
A lender has the legal right to retain any collateral pledged by the buyer. They are allowed to auction the collateral to recover the outstanding loan amount.
A waived-off loan means that the lender must return any collateral pledged by the borrower at the time of taking the loan.
Eligibility
Financial institutions write off loans to clean up their balance sheets and optimise tax liabilities. Hence, all borrowers come under its purview.
A loan waive-off facility is mainly provided to farmers to help them during natural calamities that are impossible to deal with.
Compulsion
It's mandatory for financial institutions to write off loans to keep their books and ledgers balanced and in check.
Borrowers cannot submit requests to waive-off loans. This is a voluntary activity from the lender's end with the government's support.
What is a Loan Write-Off?
Not sure what happens when a loan is written off? Consider the example of Mr Mehta. He availed of a personal loan of Rs. 10 lakhs for 3 years from an NBFC. He pays his EMIs diligently for 8 months, after which he suddenly stops without informing the lender. The NBFC now starts following up with Mr Mehta, but he doesn't repay, and the personal loan tenure comes to an end.
Sure, the NBFC deployed all legal means to recover the loan but failed to do so. In the meantime, they realise that Mr Mehta might pay off his loan if it were a lower amount. As a result, they reduce the loan’s original value as they may be able to recover the reduced amount in full. This reduction of the total loan amount is called a loan write-off.
Know that Mr Mehta is still liable to pay his new personal loan amount, and his loan is shown as a recoverable asset in the NBFC's books.
What is a Loan Waive-Off?
To understand what a loan waive-off is, consider Mr Chaudhary's example. He borrowed a personal loan of Rs 5 lakhs for 2 years to purchase equipment for his farmland. However, he faced a substantial loss due to unforeseen circ*mstances and had to declare bankruptcy.
Mr Chaudhary's inability to repay his personal loan due to a financial impediment led the lender to waive off his loan. Meaning they chose to relinquish the loan entirely. Giving up any claim on a loan happens only in exceptional circ*mstances. Know that mostly farmers have a chance at loan waive-offs with the government's support.
Conclusion
Both a write-off and awaive-off take place under different circ*mstances. While the former is a mandatory practice, the latter is at the discretion of the government and the lender. To avoid either of the situations, it is best to calculate the amount you can repay with the help of a personal loan calculator.
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If the borrower has pledged any collateral, the lender can legally retain it after a loan write-off. They can recover the outstanding loan amount by auctioning the collateral. In the case of a loan waive-off, the lender has to return the collateral pledged by the borrower.
When a loan is waived-off, the bank will not attempt to take any legal action against the borrower to recover the loan. A loan write-off means that the loan account is not closed, which means that the lender can try to recover the loan amount with the help of a legal entity.
Loan write-off refers to the situation when the lender has moved a particular loan's pending dues out of the “Assets” column and has reported this amount as a loss. This happens after the borrower has defaulted on the loan repayment, and there is a low chance of recovery.
A loan waive off means situations where borrowers cannot repay their debt due to any financial setback. This facility is granted only after a thorough investigation that suggests a particular individual cannot repay this loan due to lack of income. Usually, waiving off a loan is only granted by the government.
When debts are written off, they are removed as assets from the balance sheet because the company does not expect to recover payment. In contrast, when a bad debt is written down, some of the bad debt value remains as an asset because the company expects to recover it.
b. : to refrain from pressing or enforcing (something, such as a claim or rule) : forgo. waive the fee. 2. : to put off from immediate consideration : postpone.
To remove a write-off in CIBIL, you need to pay back the total outstanding amount. After repayment, contact your lender to update this information with CIBIL. If such a status persists erroneously, raise a dispute with CIBIL to have it rectified.
What is the benefit of a tax-write off? The best benefit from a tax-write off is the reduction of your taxable income, which in turn lowers the taxes you have to pay.
When a bank charges off a loan, it is an accounting procedure. It does not eliminate your obligation to the bank. Unless the bank forgave or cancelled the debt, you are still obligated to repay the loan.
to not demand something you have a right to, or not cause a rule to be obeyed: The bank manager waived the charge (= said we didn't have to pay), as we were old and valued customers. If they waive (= remove) the time limit, many more applications will come in.
to decide that you will not ask for something, although you have a right to do so, or that a rule will be ignored: waive a claim/fee/right The bank waived the overdraft fee.
A lender writes off a loan to equalise their balance sheets. It does not mean the loan is cancelled. The loan account is active, and lenders hope to make a recovery at a later date. Here, a lender gives up all claims to a loan amount.
Having your credit card debt written off means that it no longer exists. Your credit card company, or anyone else, can't pursue you for the money anymore, and you'll no longer receive any communications asking you to pay it.
By writing off your debt, the credit card company gets to deduct it as a loss on its financial statements and tax returns. This lowers the creditor's taxable income and results in a reduced tax liability.
You can just buy things for yourself and write them off.” “Well, then I'll return some things.” So as you can see, tax-deductible does not mean free, you're still going to be outlaying some of your cash for the item, it's going to cost you less due to the tax savings, but it's not free, so do think about it.
Though personal loans are not tax-deductible, other types of loans are. Interest paid on mortgages, student loans, and business loans often can be deducted on your annual taxes, effectively reducing your taxable income for the year.
Introduction: My name is Dean Jakubowski Ret, I am a enthusiastic, friendly, homely, handsome, zealous, brainy, elegant person who loves writing and wants to share my knowledge and understanding with you.
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