How to negotiate with the bank for a Personal Loan Settlement?

By Admin / 06 Sep, 2025

Summary

Personal Loan Settlement is a process in which negotiations occur between the borrower and the bank to close the loan by paying a part of the outstanding loan amount. This is done when a person is unable to pay his EMI on time, and the loan becomes an NPA (Non-Performing Asset). However, a loan settlement can affect the CIBIL score, so it should be adopted only as a last option.

If you want to successfully settle the loan with the bank, first of all, check your financial situation properly and decide how much you can repay. Contact the bank yourself, negotiate professionally, and negotiate whatever settlement offer you get. Do not accept the first offer immediately, but try to get a better deal.

After the bank approves the settlement, make sure you get the settlement letter and No Due Certificate (NOC) in writing. This will not cause any legal or financial problems in the future. Also, if the bank offers a loan repayment plan or moratorium option instead of settlement, consider that as well so that your CIBIL score is not affected much.

Introduction

Nowadays, many people take personal loans, but sometimes, due to a deteriorating financial condition, it becomes difficult for them to repay the loan on time. In such a situation, negotiating a loan settlement with the bank can prove to be a good option. But it is very important to adopt the right method for this so that you can clear the loan by paying the minimum amount and your credit score is also not affected much.

If you go to negotiate with the bank without the right strategy, then the bank will not show much interest in accepting your point. Therefore, it is important that you first check your financial condition properly and make full preparations to negotiate with the bank.

When a person is unable to pay the EMI of the loan, and the bank feels that loan recovery will be difficult, the bank offers a loan settlement. In this, the borrower gets the facility to close the loan by paying a lump sum amount of some percentage of the outstanding amount. However, this process can affect your CIBIL score, so adopt it only as a last option.

In this article, we will know in detail what is the right way to negotiate with the bank during Personal Loan Settlement, and by paying attention to which important aspects you can do better negotiation with the bank. We will give you information about the key points that can help you during negotiations with the bank, such as the right time for settlement, negotiation strategy, necessary documents, possible conditions of the bank, and the effects after settlement.

What is Personal Loan Settlement?

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 paying the entire outstanding loan amount. This facility is for those who are unable to repay their loan on time due to some reason 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, which may make it difficult for you to get a loan in the future. Therefore, it should be adopted only as a last option.

How does a Personal Loan Settlement work?

Personal Loan Settlement companies negotiate with creditors to reduce the outstanding amount on unsecured loans such as credit cards, medical bills, or personal loans for you. Personal Loan Settlement is not just an option for secured loans, such as mortgages or auto loans.

These offers only tempt banks if they think you won’t pay back the loan at all, so a personal loan settlement company will advise you to stop making payments on your loan immediately and instead open an escrow account and put your monthly payments into it. Once you have enough money saved up for a lump sum payment for a personal loan settlement, the personal loan settlement company facilitates the transaction.

What documents are required for a Personal Loan Settlement?

If, for some reason, you are unable to pay your loan in full, then a loan settlement can be an option. In this, the bank or loan-giving institution (NBFC) settles your outstanding loan for a certain amount by giving some discount. But to complete this process, you have to submit some important documents.

Documents required for loan settlement:

Identity Proof

Aadhaar Card
PAN Card
Passport
Voter ID
Driving License

Address Proof

Aadhaar Card
Electricity or Water Bill
Bank Passbook or Statement
Ration Card
Passport

Income Proof

Salary Slip (last 3-6 months)
Bank Statement (last 6-12 months)
Income Tax Return (ITR)
Form-16

Loan Agreement

This is the document issued by the bank or NBFC at the time of giving the loan. It contains the details of the loan terms and your outstanding amount.

CIBIL Report (Credit Score Report)

During the loan settlement, the bank checks your CIBIL score, which gives them information about your credit history. This report shows your credit behavior and current loan status.

Settlement Request Letter

If you want to get the loan settled, then you have to give a written request letter to the bank, in which you will tell about your current financial situation and the need for settlement.

What is the difference between a Personal Loan Settlement and a Credit Card Loan Settlement?

Although both Personal Loan settlement and Credit Card Personal loan settlement aim to provide relief to the borrower, there are some important differences between them.

Points of Difference	Personal Loan Settlement	Credit Card Personal Loan Settlement
Type	Settlement of any type of loan (personal, home, car, education, etc.)	Settlement of Credit Card dues only
Settlement Process	The bank fixes a lump sum amount, on payment of which the loan gets settled.	The credit card company settles the amount at a fixed amount.
Impact on CIBIL score	CIBIL score may drop by 50-100 points, and it may become difficult to get a loan in the future	There is a huge impact on the CIBIL score, and it may be difficult to get a new credit card.
Possibility of getting a loan in the future	You may face problems in getting a home loan, car loan, or any other loan	Credit card companies may refuse to issue the card.
Possibility of being blacklisted	Less	especially from credit card companies

Are there any other options apart from a Personal Loan Settlement?

If you do not like the option of Personal Loan Settlement, then you can also consider some other options, such as:

Loan Rescheduling: In this, the bank reschedules the loan of the borrower, which makes it easier for the borrower to pay his installments. Under this, the monthly installments of the borrower are reduced, but the loan period is increased.

Loan Refinancing: In this, the borrower repays the old loan by taking a new loan. This new loan is usually at a lower interest rate, which reduces the monthly installments of the borrower.

Consolidation Loan: In this, the borrower combines all his small loans into a big loan and pays it in a single installment. This makes it easier for him to manage the loan, and the interest rate can also be reduced.

How does a personal loan settlement affect your credit score?

The impact can be seen in the following ways:

After a personal loan settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors feel that you may be a high-risk customer.

If your credit score drops, it may be difficult for you to get a loan, credit card, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

When you settle for a personal loan settlement with your bank, you are not paying off the entire loan but paying a certain amount that is less than the principal amount. This is seen negatively by the credit bureaus as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

After the Personal Loan Settlement process, your credit report will be entered with the information that you have “settled” your loan. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

Since a Personal Loan Settlement means that you have not repaid the entire loan, when you try to get a new loan in the future, banks may look at your credit score and report and reject your application or give you a loan at higher interest rates.

What are the advantages and disadvantages of Personal Loan settlements?

It has the following advantages and disadvantages:

Advantages (Pros)

The heavy burden of debt often causes mental stress. With Loan Settlement, the borrower gets relief from this stress, and he can find mental peace in his life.

Through Personal Loan Settlement, the borrower gets a chance to get part of his debt waived off.

This helps to improve his financial condition and gives him relief from a heavy financial burden.

Although a Personal Loan Settlement can affect the borrower’s credit score, by following the agreement on time and properly, he can gradually improve his credit score.

Personal Loan Settlement improves the financial condition of the borrower.

By doing a Personal Loan Settlement, you can manage your income and costs better and avoid a financial crisis in the future.

Disadvantages (Cons)

During a Personal Loan Settlement, the agreement between the bank and the borrower has many conditions. The borrower is required to follow these conditions, which can limit his freedom.

After a Personal Loan Settlement, the borrower’s credit score may be affected.

Personal Loan settlements may create difficulties in taking new loans or obtaining credit cards in the future.

Due to a Personal Loan Settlement, the borrower’s relationship with the bank and other financial institutions may deteriorate.

In the future, the borrower may have difficulty in getting loans from these institutions.

Through Personal Loan Settlement, the entire loan of the borrower is not waived off. He still has to pay some amount, which can affect his financial condition.

How do you negotiate with the bank for a personal loan settlement?

If you are wondering how to negotiate with the bank and get the best loan settlement offer, here we will explain the entire process step-by-step.

Assess your financial situation correctly.

Before contacting the bank, it is important to understand your current financial condition. You should know –

What is your total outstanding amount?

What is your monthly income and expenses?

How much can you pay in a lump sum to the bank?

Contact the bank yourself.

The bank usually sends a recovery agent if you do not pay EMI for several months, but it would be better if you contact the bank yourself.

Go to the bank branch with your loan account details and talk about loan settlement.

Tell the bank clearly that you are not in a position to repay the entire loan amount and want a settlement.

Negotiate the right settlement offer.

The bank may usually be willing to take a certain percentage (30%-70%) of the total outstanding loan amount as a settlement, but it depends on your negotiating skills.

Do not immediately accept the first offer the bank makes.

Negotiate for a better deal, keeping in mind your situation.

If the bank has offered 60% payment, try to bring it down to 40%-50%.

The bank may be flexible in settlement, provided you negotiate properly.

It is important to get the agreement in writing.

Whenever the bank agrees to a settlement offer, ask for it in writing.

Make sure that the written letter clearly states that the bank will not ask for any more money from you after settlement.

Do not forget to get a “No Due Certificate (NOC)” from the bank.

If you have written proof, you will not face any legal or credit score-related problems in the future.

Understand the impact on the CIBIL score.

Loan settlement can reduce your CIBIL score, as the bank can put it in the “settled” category, which can create problems in taking a loan in the future.

If you do not want to harm your credit score much, you can also negotiate with the bank for a loan repayment plan or loan restructuring.

How do I apply for a Personal Loan Settlement online?

If you want to apply it online, then follow the easy steps given below:

Visit the bank’s website or app.

Open the official website or mobile app of your loan provider or bank.

Check the customer support section.

Go to the ‘Customer Support’ or ‘Contact Us’ section on the website or app.
Here, you can find the option related to “Loan Settlement”, such as:
Filing a loan-related complaint.
Request form for loan settlement.

Fill out the request form for the settlement

Select the “Loan Settlement Request” option.
Fill in the required details, such as:
Your name
Loan account number
Email ID and mobile number
Reason (why you want to settle, such as financial problem or reduction in income).

Upload the required document

Upload documents that show your current financial situation, such as:
Income certificate or salary slip
Bank statement
Any other proof that explains your problem.
Upload all the documents by scanning them in the correct format (PDF or JPEG).

Submit and wait for the bank’s response

Once you have submitted the form, the bank will verify your request.

The bank will most likely contact you within 7-10 working days. They will notify you of the settlement through email, call, or message.

Read the bank’s offer.

The bank will make an offer to waive some portion of your pending amount. Carefully read it.

If you accept the offer, go ahead. Otherwise, bargain further.

Make payment

Pay the decided settlement amount from the bank online.

The bank will provide a payment confirmation and close your loan account.

Conclusion

Personal loan settlement is not an easy task because the bank tries to recover the full amount of its loan, while the customer wants to settle it by paying the minimum amount. In such a situation, it becomes very important to negotiate sensibly with the right strategy. If you negotiate with the bank without planning, then the bank can take advantage of your situation and force you to pay more.

Adopt a patient and professional attitude while negotiating with the bank. Tell the bank about your problem correctly and emphasize that you are not in a position to repay the loan in full. The bank may usually be ready to waive some amount of the loan, but it completely depends on your negotiation ability and the bank’s policy.

Apart from this, it is very important to get written documents during the settlement. Do not forget to take the No Due Certificate (NOC) and settlement letter from the bank so that there is no problem in the future. If you do not take written proof, the bank may demand more payment from you later, which may cause you trouble.

Frequently Asked Questions (FAQ’s)

Que: Can the bank waive the loan rather than settle?

Ans: No, the bank does not waive the loan but can provide an option of decreasing the loan amount by settlement.

Que: Do I have to take NOC after the settlement of the loan?

Ans: Yes, it is extremely necessary to obtain a No Due Certificate (NOC) and a Settlement Letter from the bank once the settlement is done so that there would not be any legal or credit score-related issue in the future.

Que: Can a loan be availed again after a Personal Loan Settlement?

Ans: Yes, but as your CIBIL score is impacted by settlement, banks or financial institutions might not be willing to lend you money in the future.

Que: Do all banks offer a Personal Loan Settlement facility?

Ans: Yes, all banks and financial institutions provide the facility of Personal Loan Settlement, but it entirely depends on the bank’s policy and the financial status of the borrower.

Que: Will the loan settlement impact my CIBIL score?

Ans: Yes, a Personal Loan Settlement can reduce your CIBIL score because the bank might classify it under the “settled” category, which can lead to issues in availing a loan or credit card in the future.

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How to negotiate with the bank for a Personal Loan Settlement?