Difference Between Write-off and Waive Off

Difference Between Loan "Write off" & "Waive off"

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16 Jun 2020

A Loan waiver and Loan write off are two different concepts of dealing with bad loans. Many people who are unaware of different financial terms and quotes get confused with the actual definition of these terms. Though the nature of both Loans Waive-offs and Loan Write off may seem to be almost similar, there is an important point that creates a major difference between both.

The major difference between "Write off" & "Waive off" Loan is that Loan Waive-off is something where the loan-taker is released from the burden of paying back the loan amount, while in the case of Loan Write-off; the financial institute still hopes to recover the loan amount from the person who not repaid it back. The decision of waiving off a loan is taken by the Government under certain conditions while Loan Write-off is carried out by the banks to keep a clear record of the unrecovered loan amount in their balance sheets.

What is a Loan Waiver?

In situations where an individual applies for a loan and is not able to repay the loan amount due to financial setbacks, many times, the Government may waive off such loans. Of course, this is done after a proper investigation and background check in order to be sure that the borrower was genuinely not able to make an earning and hence requires financial support. This happens in the case of farmers who get loans for their cultivation and somehow due to bad crop or climatic conditions are not able to earn well and are unable to repay back the loan amount. However, there are certain terms and conditions under which waive offs are carried out.

The officials conduct an investigation to check out the situation and then only they can decide whether the loans have to be waived off or not. Besides farmers, anyone can apply for a loan waiver if they have a justifiable reason for it. Today, waving off of loans especially for farmers have become a strong point for ministers to fill in the vote banks. Moreover, loan wave offs are a great help in lifting off the financial burden on farmers.

What is a Loan Write-Off?

Loan Write off meaning the loan amount gets written off by the banks, but it does not mean the trials for recovery will be ceased. The main idea behind doing this is to utilize the money in doing its business, which was kept aside initially at the time of lending the money to its borrowers. One major point that differentiates loan waive-off and Loan Write off is that the loan amount is not cleared out completely. Writing off a loan makes the bank's balance sheet look rosy. The Bank calls for the write off of a loan borrowed by a defaulter when the chances of loan recovery are almost zero and its assets are non-performing.

For example, an individual applied for a loan from a bank for a trip abroad and has not returned the loan amount to the bank after the promised time duration. In this case, the bank will try different methods to recover the loan amount such as calling the person, his family members, and even some legal steps. If the loan amount is still not recovered, the bank will expect to recover the money whenever the person is back in the country again.

If a borrower is unable to repay the loan, the unrecovered loan amount cannot be left out without any records. Hence, in order to tally the amounts in the balance sheet, the banks mention this loan as a write-off loan amount so that this loan can be recovered later on.

Difference Between “Write-off” and “Waive Off” of Loans

Loan Waiver

Loan Write-Off

Loan Waive off meaning complete cancellation of recovery of loan. The individual is free from repaying the loan amount.

A non-performing asset is considered in Loan Write off after all avenues of recovery are exhausted and chances of recovery of the loan amount is low. Writing off a loan does not completely cancel out recovery.

Provided by govt. to farmers in scenario of natural calamity or other conditions that are beyond control

This step is carried out by banks to achieve tax efficiency.

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