The difference between Loan Write off and Loan Waive off

Every time you take a loan, secured or unsecured, you are expected to repay it in full. However, there may come a time when you are not able to. When you are unable to repay a loan, it is categorized as Non-Performing Assets or NPAs by lenders. 

NPAs are basically bad loans. If a lender has a bad loan or an NPA, what happens to them? In the recent past, you may have come across news items talking about NPAs and how they have been either written off or given a loan waiver.  

Loan write-off and loan waive-off are financial terms that are used when it comes to bad loans. Though they may sound similar, they both have very distinct meanings and differ from each other. 

To understand write-off vs waiver-off, you must first know what a loan waiver and loan write-off is.

What is a Loan Write off?

Assume Mr. A has taken an instant loan of Rs 5 lakhs for a period of 2 years from XYZ bank. He has paid the EMI for 4 months. However, post that period, he was unable to repay and has stopped paying the EMI without any prior intimation to the lender. 

After consistent follow-ups, there is no repayment and the tenure of the personal loan comes to an end. 

The lender has used all legal means to get Mr. A to repay the loan but in vain. At a time like this, the lender decides to write off the loan. 

A loan-write off is when a lender reduces the original value of the loan as they may not be able to recover the full amount. 

However, the borrower is still liable to pay the personal loan as it remains as a recoverable item in the books of account of the lender.

What happens when a loan is written-off?

When a lender writes off a loan, it does not mean that it cannot be recovered by them using legal means. It is simply a way to show that the borrower is not paying off the loan to the lender currently and that there is a possibility that it can be received in the future.

  • One of the benefits of a loan write-off is if the money is recovered by the lender, it adds to the profit in the year when the recovery is done. 
  • If the borrower has offered collateral against the personal loan, the lender has every legal means to confiscate it and claim the money and add it to their books. 
  • This is a common practice used by lenders to clean up the balance sheet. 
  • After a loan has been written off, the lender can claim tax benefits. Though technically, it is written off from the books of accounts, the lender can still legally ask the borrower to repay the debt and generate revenue.

What is Loan Waive-off?

Let’s take the case of Mr. B who availed of a short-term loan of Rs 2 lakhs from XYZ bank for 2 years. He diligently repaid 4 EMIs. However, during the course of the repayment schedule, he had an unexpected fall in business and had to declare bankruptcy. 

When a borrower is unable to repay the loan due to financial impediments, the lender in exceptional circumstances can choose to relinquish or give up any claim on the loan. This means that the lender will not ask the borrower to repay the loan. 

A loan waiver can only be done after conducting investigations by the lender. In the above example, since Mr. B is said to be bankrupt. Hence, XYZ bank decides to waive off his pending loan. 

What you do need to know is a bank loan waive-off is a facility that is catered only to farmers with the support of the government.

Write Off vs Waive Off

Sr No

Loan Write-Off

Loan Waive Off

1

Write-off of a loan does not mean that the loan is closed completely. It means that though it has been shown as the debt is written off from the books, the borrower is still liable to pay it back. 

Loan waive-off would mean that the loan is considered to be completely cancelled and the borrower no longer holds the liability of the loan.

2

Since the loan is still to be paid, the lender can pursue a legal course of action against the borrower.

No legal action can be taken against the borrower. 

3

If any collateral has been pledged, the lender has the right to seize and auction it to recover the repayment amount

The collateral can be given back to the borrower. 

4

It is done regularly by banks and financial institutions to clean up the balance sheet and reduce the tax implications.

Waive-off is provided to farmers who are unable to repay a loan due to natural calamities.

5

There is no government support provided to the lender.

The government provides support to the lender when farm loans are waived off. 

Conclusion

Both loan write-off and waive-off always refer to the future status of bad loans. Though a personal loan write-off is possible, a waive-off isn’t. If you are worried about finding yourself in such a situation, it is best to take a loan that you know you will be able to repay.

Finnable provides easy personal loans for the salaried at affordable interest rates, with loan tenures that start at 6 months up to 60 months. 

You can take an education loan, a marriage loan, a medical loan, etc. through their online loan app. Since these are unsecured loans, you will be required to pledge any collateral against the loan.

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