Personal Loan Settlement is a financial process in which the borrower and the bank reach an agreement when the borrower is unable to repay the full loan amount and proposes to settle a part of the outstanding loan amount with the bank by paying a lump sum amount. This usually happens when a person’s financial situation (CIBIL score) deteriorates so much that he is unable to pay his EMIs regularly.
Before deciding on a loan settlement, it is important that the borrower properly assesses his financial situation and considers options like loan restructuring if possible. This may allow them to reduce their EMI or increase the loan tenure without affecting their CIBIL score.
It is important to be careful in all loan settlement processes as a wrong settlement can create problems in getting loans in the future. Therefore, talking to the bank at the right time and getting help from an expert financial advisor can prove to be a good step.
If you have taken a personal loan and, for some reason, are having difficulty repaying it, then the biggest fear is that your CIBIL score will be spoiled. CIBIL score reflects the credit history of any person and decides whether you will get any type of loan in the future or not. When it comes to loan settlement, most people take the wrong steps in haste, which can badly affect their credit score.
After taking a personal loan, many times, the financial condition can also deteriorate. Like losing a job, loss in business, medical emergency or any other unwanted situation can cause problems in repaying the loan. In such a situation, many people opt for a loan settlement, where an attempt is made to close the loan by paying a lesser amount to the bank or financial institution instead of the entire loan outstanding amount.
The most important thing during loan settlement is that it should be done with negotiation and proper planning. For this, first of all, talk to the bank and clearly state your current financial situation.
In this article, we will learn how to settle a personal loan without spoiling the CIBIL score and what things are important to keep in mind. So, stay till the end of this article.
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. 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”.
Let us understand both of these in detail:
The following documents are required:
If you want to apply it online, then follow the easy steps given below:
The impact can be seen in the following ways:
Here are some important points to consider that will help you choose the right personal 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 Personal Loan Settlement, then you can apply for our Personal 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.
Here are some ways you can settle a personal loan without spoiling your CIBIL score:
If you are unable to repay the entire loan amount, you can opt for loan restructuring. In this process, the bank may extend your loan tenure or reduce the interest rate, thereby reducing the EMI amount. This does not affect your CIBIL score as you continue with your loan repayment process.
If you cannot repay the loan amount by a certain time, you can request the bank to extend the loan repayment period. This may reduce your EMI, and you can make the payment on time without any major loss. This method does not harm your CIBIL score, as you are paying the entire amount.
Some banks also have a partial payment option, wherein you can pay a part of the loan amount and get a discount on the remaining amount. This option helps you settle the loan and provides a solution without negatively impacting your CIBIL score.
You can request the bank to reduce your interest rate. If the bank approves this proposal, it will be easier for you to repay the loan. Repaying the loan at a lower interest rate will reduce your financial burden and also give you a chance to preserve your CIBIL score.
If you have enough money, try to close the loan. By doing this, you can pay the full amount, and the bank will report it as “Paid in Full”, which has a positive impact on your CIBIL score. However, it is always better to pay the full amount rather than settling.
If settlement is the last option, make sure the bank understands your situation and reports it as “Paid in Full” and not “Settled”. This will have less impact on your CIBIL score.
It has the following advantages and disadvantages:
Personal Loan Settlement is a method that comes in handy when a person is unable to repay the full amount of his loan. Although this process can hurt your CIBIL score, by adopting it correctly and carefully, you can protect your credit score. The main purpose of Personal Loan Settlement is to settle the loan for a smaller amount by negotiating with the bank or financial institution, but doing it without loss can prove to be challenging.
Before adopting this process, you need to check your financial situation properly. If you are unable to repay the loan, first consider the possibility of loan restructuring or temporary relief.
If a loan settlement is needed, you must negotiate with the bank properly. Make sure that the bank understands your situation and reports the settlement as “Paid in Full”. This will have less impact on your CIBIL score.
Que: Does the loan end completely after settlement?
Ans: If a settlement is reached with the bank and you have paid the settlement amount, the loan is considered to be over. However, the settlement may be reported on your CIBIL score, which may cause problems in getting a loan in the future.
Que: Can loan restructuring prove to be a better option than settlement?
Ans: If your financial situation is a little stable and you want time to reduce the loan installments, then loan restructuring can be a good option. This will not have any negative impact on your CIBIL report, and you will be able to pay your loan easily.
Que: Is it necessary to discuss all the options with the bank before settlement?
Ans: Yes. Before you opt for settlement, you should consider options like loan restructuring, partial payment, or a new payment plan with your bank. This will have less impact on your CIBIL score.
Que: Does the bank charge any fee for loan settlement?
Ans: Some banks charge a fee for loan settlement, but this fee depends on the bank and the loan status. It is important to get complete information about this from the bank.
Que: Can I take a loan in the future after the loan settlement?
Ans: Your CIBIL score may be affected after loan settlement, but if you have improved your situation in time, then it may be possible to get a loan in the future. You have to take care that the reporting of loan settlement is done on time and correctly.
Founded in 2015, Ahk Tips is a New Delhi-based financial advisor specializing in debt relief and loan management solutions.
