Ask the Law: Can banks increase interest when rescheduling loans?
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Question: A year ago, I took a loan from a bank but in the past three months, I was unable to pay the monthly instalment due to circumstances beyond my control. Two weeks ago, I asked the bank to reschedule the loan, increase the period, and reduce the monthly instalment, but the bank raised the interest according to the interest currently applied in banks. However, I refused to increase the interest and asked the bank to calculate the same interest agreed upon, but the bank refused my request. My question is, what is the position of the law on the behaviour of the bank, and is it legally entitled to increase the interest when making a debt rescheduling, and how should I act towards the bank? Please advise.
Answer: The bank has the right to request for new interests because re- scheduling the loan is a kind of a new contract between the debtor and the bank. It takes place in many forms, including but not limited to, if the creditor and the debtor agree to replace a new debt with the original debt, or to change the reason for the original debt. It entails renewing the client’s commitment, expiring the first commitment arising from the current account and replacing it with another new commitment.
This matter is agreeable between both parties so that you have to settle it amicably in order to reach the best percentage that might fit you. In case you are unable to reach a settlement, you may leave the matter to the court.
It is decided in the Higher Court that: “The decision to renew the debt by changing its subject matter is a contract in which it is agreed that a previous debt will expire and that a new debt will replace it.
The bank’s agreement with its customer to terminate the current account and replace it with another banking facility with the debit balance resulting from operating the current account, results in the renewal of the customer’s commitment to change its source, the expiration of the first commitment arising from the previous current account and the replacement of another new commitment with its terms and conditions with the consequent expiration of the personal or in-kind securities that were guaranteeing the first obligation, unless it is agreed that they remain the guarantor of the new obligation. (299/2020 commercial cassation)”
