Personal Loan Settlement Letter is a process in which the bank and the borrower reach an agreement to waive off some amount of the loan and settle the loan by paying the remaining amount in a lump sum. This is useful for those who are unable to pay their EMIs for some reason and have come to a state of loan default.
In settlement of the loan, you first have to go to the bank and tell them about your situation. If the bank is assured of your situation, they will offer you a settlement offer, which will outline the amount that you will finally pay and the terms.
After settling the loan, you have to take the necessary steps to improve your credit score, such as paying other financial obligations on time, taking small loans and repaying them on time, and requesting the bank to update the CIBIL report. With the right plan, you can gradually improve your credit score and achieve financial stability in the future.
It is easy to take a personal loan, but sometimes it becomes difficult to repay that loan due to a financial crisis or any other reason. In such a situation, the bank can start the loan recovery process, which can affect your credit score. In this situation, getting a loan settlement from the bank can prove to be a great option. Loan settlement means that there is an agreement between the bank and the borrower in which the bank can waive interest or penalty and agree to settle the loan at a certain amount.
The most important part of loan settlement is the “Loan Settlement Letter”. It is a legal letter that is proof that the loan settlement has been completed as per the terms and conditions mutually agreed upon between the lender and the bank. This letter avoids any future financial or legal problem, as it is proof that the bank has settled the loan, and now there is no outstanding amount on the borrower.
Once you have paid the settlement value, you will need to obtain an official “No Dues Certificate” (NDC) and Loan Settlement Letter from the bank. This will serve as evidence that your bank has settled the loan and that no amount is pending. Ensure that you obtain this letter from the bank to avoid any financial or legal issues in the future.
In this article, we will understand step by step how to get a personal loan settlement letter from a bank and why it is required. We will understand what loan settlement is, when it can be needed, and what documents and terms the bank must fulfill to successfully perform this process.
It is a financial process in which the bank or financial institution allows the loan taker to settle the loan by paying a lesser amount instead of the entire outstanding loan amount. This facility is for those who are unable to repay their loans on time and are continuously defaulting.
Under a settlement, the bank can agree on a lump sum amount, which closes the loan. However, it is important to note that settling the loan can affect your CIBIL score, making it difficult for you to get a loan in the future. Therefore, it should be adopted only as a last option.
When a person is unable to pay the EMI of his loan on time and the outstanding amount accumulates over a long period, the bank or financial institution offers the option of loan settlement. In this, the bank allows the customer to pay a discounted amount instead of the entire outstanding amount, thereby settling the loan matter.
The process of settlement comprises discussions between the bank and the customer, wherein the bank assures that the customer can’t pay the entire loan amount. Thereafter, the bank issues a single-payment offer, which is typically lower than the outstanding loan balance. On the payment of this settled amount by the customer, the bank marks the loan as “Settled”. Yet, this is not good for the CIBIL score since it is not treated as a “Complete Payment”.
Hence, loan settlement should be opted for as a matter of last resort, and if at all possible, loan repayment schemes, loan restructuring, or alternative financial solutions must be opted for so that the credit rating is not impacted.
The following documents are required:
If you want to apply it online, then follow the easy steps given below:
Let us understand both of these in detail:
The impact can be seen in the following ways:
Here are some important points to consider that will help you choose the right Loan Settlement service:
Before hiring a settlement service, make sure that the service provider you are hiring is registered and certified with financial institutions and banks. Only a reliable service provider can provide you with the right guidance and support. Checking online reviews and customer feedback is a good way to do so.
Many service providers also charge a service fee, but make sure that the charges are not high and there are no hidden costs. Negotiate with the service provider beforehand about which services are free and for which you will have to pay extra.
Carefully understand the settlement process offered by the service provider. Do they understand your entire situation and provide you with a better solution to negotiate with the bank? A good provider will give you complete information about the paperwork and the process so that you understand the entire process properly.
You should also ensure that the service provider is legally recognized and aware of all the rights that are associated with the settlement of your loan. This will prevent you from facing any legal hassles in the future.
Before choosing the settlement process, make sure that the service provider also gives you information about alternative solutions like loan restructuring or new payment plans. These options can sometimes be better than a settlement and do not hurt your CIBIL score.
A good service provider will always stay in touch with the customer and resolve your problems properly. Make sure they answer your questions quickly and are ready to work with you in any difficult situation.
If you are also trapped in the debt trap and are facing a financial crisis and want to adopt the path of Loan Settlement, then you can apply for our Loan Settlement service. We will help you in settling your loan. Along with this, we provide you relief from the burden of the loan within 6 – 8 months. If you want to get more information about our service, then you can contact us.
The time taken for the settlement process also depends on various factors, such as the policies of your bank or lender, the outstanding amount, and the communication between the two of you. Usually, this process can take from 1 to 3 months.
The first action in the process of settlement is to approach the bank, where you tell your problem and payment status to the bank. Then, the bank proposes a settlement offer according to your situation. In case you agree with that proposal, you need to pay the amount to the bank within the agreed time. The bank indicates the loan as settled, and this would take some time.
The longer this entire process continues, the more it can impact your CIBIL score, so it is preferable to resolve the issue sooner.
If you have taken a personal loan from a bank and, for some reaso,n are unable to repay it in full, then loan settlement can prove to be a better option for youA loanan settlement is an agreement between the bank and the borrower (the person taking the loan), in which the bank agrees to settle the loan at a certain amount by reducing the interest or penalty. When the loan settlement is completed, the bank issues a Loan Settlement Letter, which confirms that there has been an agreement between the lender and the bank, and now the borrower does not owe anything.
First of all, you have to contact your bank and tell them about your current financial situation. If you are unable to repay the loan in full, you can request the bank for loan settlement.
If the bank understands your financial situation and agrees to settle, it will give you a written Settlement Offer Letter. It will contain the final settlement amount, payment terms, and other important information.
As per the terms given by the bank, you have to pay the decided settlement amount. This payment is made in a lump sum (one-time settlement); that is, you have to pay the entire amount together.
Once you pay the settlement amount, you need to get a Loan Settlement Letter and No Dues Certificate (NOC) from the bank.
Loan settlement can have an impact on your CIBIL score as it is shown as a ‘settled’ status, which can create problems when applying for new loans in the future. Hence, request the bank to update your CIBIL report that the loan has been completely settled.
It has the following advantages and disadvantages:
The settlement of a loan is a process in which the bank and borrower come to a mutual understanding to settle the loan for less by providing some concessions rather than paying the full loan. But this is not an easy process and needs you to approach the bank appropriately.
To start with, you must approach your bank and inform them of your financial condition. If the bank understands your situation and gives its approval for the settlement, it will make a settlement offer, and this will include the settlement value and conditions. Subsequently, you are required to pay this amount in a lump sum because the bank generally does not accept payment by installments.
After you have paid the amount that was agreed upon, the final thing that is most crucial is to obtain the loan settlement letter and No Dues Certificate (NOC). Both these certificates are a surety that you have paid your loan and you do not owe any money. These certificates save you from any legal issues in the future and make sure that the bank does not request you for any dues anymore.
Que: Can the bank ask for money again after the loan settlement?
Ans: No. If you have a loan settlement letter and NOC of the bank, the bank can’t ask for money from you.
Que: How long is the loan settlement process?
Ans: It varies with the bank and is case to case. Normally, the settlement process can take 1 to 3 months, involving negotiations with the bank, offer of settlement, and payment.
Que: Does the bank permit loan settlement every time?
Ans: No, the bank treats loan settlement as the last resort and authorizes it only when the borrower is facing an extreme financial crisis and is unable to repay the entire amount.
Que: Is it possible for me to get a loan after settlement?
Ans: Yes, a loan settlement negatively affects your CIBIL score, and it leads to trouble in availing the sanction of the loan in the future. You will have to invest time and effort into improving your CIBIL score.
Que: Will the loan settlement affect my CIBIL score?
Ans: Yes, a loan settlement adversely impacts your CIBIL score. Settlement is worse than “full payment”; hence, it becomes more difficult to obtain loans or credit cards in the future.
Founded in 2015, Ahk Tips is a New Delhi-based financial advisor specializing in debt relief and loan management solutions.
