Difference Between Loan Write-off and Waive-off

The lender declares a particular loan a ‘bad debt’ or Non-Performing Asset (NPA) if you do not pay the EMIs for more than 90 days. Then there are two ways to proceed: the lender can either write it off or waive it off. 

While two terms sound similar, they are two very different concepts. This makes it essential to know the difference between write-off and waive-off.

When lenders determine they cannot recover a loan, they may decide to forgive or waive-off the debt. This releases you from any repayment obligations.  Additionally, it means the lender will not pursue the recovery of the loan or initiate any legal action against you.

For example, say that Aaryan loaned his friend Bharat a sum of ₹1 Lakh. Bharat loses all of that money in stock trading. Additionally, he also loses his job. Bharat then goes to Aaryan and explains his situation. 

Realising that there is no way Bharat can possibly pay him back, Aaryan tells Bharat that his loan is forgiven and he does not want to recover the money anymore. This means that Aaryan has waived off Bharat’s loan.

Writing off loans is a practice that lenders perform periodically to clean up their balance sheets. When a lender writes off a loan, the loan account still remains in their books as they hope to recover it at a later date. 

If you have offered any collateral, the lender confiscates it until you repay the loan. They may also auction the collateral to recover the borrowed sum. If you have not submitted any collateral, the lender may even take legal action against you to recover the amount. 

Consider the example of Aaryan and Bharat again to understand how a loan write-off works. 

In this scenario, instead of forgiving the loan, Aaryan has simply chalked off the loan recovery to a later date, owing to Bharat’s financial condition. Bharat eventually pays Aaryan back the borrowed money after a long delay.

While many use these two terms interchangeably, they represent distinct actions that lenders take to address loan repayments. The key differences between a loan write-off and a loan waive-off are as follows:

Here is how loan write-off impact borrowers and lenders:

1. Impact on Lender

• Lenders can claim a tax deduction on the total loan value once it’s written off

• It allows lenders to keep a clean balance sheet

• Lenders can still pursue recovery of the bad loan, with any repayments received after write-off counting as profit

• Lenders can utilise the previously blocked funds for business operations and expansion after writing off a loan

2. Impact on Borrower

• It helps borrowers avoid exhausting their credit limit

• They borrow what they need and pay interest only on the amount used

Lenders and borrowers experience the following impact due to a loan waive-off:

1. Impact on Lender

• A loan waiver leads to a loss for the lender as it relinquishes a substantial portion of the loan amount

2. Impact on Borrower

• A loan waiver benefits borrowers by eliminating any repayment obligation, enabling them to address other pressing financial needs

• Loan waivers can also enhance the borrower’s credit score, increasing their likelihood of securing future loans

Although loan write-offs and loan waive-offs are both used in the context of bad debts, they are very different. 

The key difference is that the lender initiates a write-off when loan recovery seems unlikely. In contrast, a waive-off is a relief the lender provides to borrowers.