What is the difference between Credit Card Settlement and Full Payment?

What is the difference between Credit Card Settlement and Full Payment?

Summary

The right use of credit cards can strengthen our financial position, but if it is used carelessly, it can also cause a debt burden. When the credit card bill is not paid on time, the interest and penalty increase, making it more difficult to repay the loan. In this situation, people have two options – credit card full payment and credit card settlement.

Full payment means that you repay the entire outstanding amount of your credit card on time. This habit not only strengthens your financial position but also keeps your CIBIL score good. With this, you can easily get loans, credit cards, and other financial facilities in the future.

On the other hand, credit card settlement is done when the customer is unable to repay the entire amount. In this situation, the bank or credit card company reduces the outstanding amount by making a settlement and closes the account after taking the fixed amount. However, this gets recorded as “Settled” on your credit report, which may make it difficult to get a loan or a new credit card in the future.

 

Introduction

In today’s time, the use of credit cards has increased a lot. People use credit cards for shopping, bill payments, travel, and other necessary expenses. Credit card is a very convenient financial tool, but if it is not used properly, it can also become a financial burden. Many times people overuse credit cards and are unable to pay them in full on time, which increases the burden of heavy interest and penalties on them. In such a situation, they have two options – credit card settlement and full payment.

But now the question is, what is the difference between credit card settlement and full payment? It is very important to know this because it has a direct impact on your financial future. If you make full payment of your credit card, it proves beneficial for your credit history and CIBIL score. On the other hand, if you choose the settlement route, it gives you immediate relief but can hurt your credit score in the long run.

Credit Card Settlement and Full Payment

When you pay the entire dues of your credit card on time, it is called full payment. This means that you have paid the full amount of credit given by the bank or credit card company and now you will not be charged any interest or fee. By making full payment, your CIBIL score remains good and you can easily get loans or other credit facilities in the future.

If you are unable to pay the credit card in full and are unable to repay the outstanding amount for a long time, then the bank or credit card company can offer you a settlement. In this, the bank settles your case by taking some less amount from you instead of the entire outstanding amount. However, this process is recorded as “Settled” on your credit report, due to which you may face problems in taking loans in the future.

Let us know in detail in this article what are the advantages and disadvantages of credit card settlement and full payment, which option is better for you, and under what circumstances it is right to settle.

 

What is a Credit Card Settlement?

Credit Card Settlement is a process in which you negotiate with your creditor to forgive a part of the outstanding amount on your credit card by making a lump sum payment. It is an agreement that you make with your card issuer as a last resort when you see that your credit card debt is increasing.

This can happen due to many reasons, ranging from unnecessary spending to careless spending habits. When your debt increases, the interest on it also increases, which can make it difficult for you to repay the outstanding amount. If you do not see any way out of this, then you can recommend Credit Card Settlement.

 

What are the reasons for doing a Credit Card Settlement?

Below are some common reasons:

• If a person loses his job, stops a source of income, or suffers huge losses in business, then it may be difficult to repay the loan on time.

• There may be a shortage of money to repay the loan if the expenses suddenly increase due to a major illness or medical emergency.

• Many times, a person has the burden of more than one loan, which becomes difficult to repay on time.

• There may be problems in repaying the loan due to any natural disaster, accident, or any major crisis in the family.

• If the interest rate of the loan is very high and there is a problem in repaying the installment, then Credit Card Settlement is resorted to.

• Many times, a person is not able to manage his expenses and income properly after taking a loan, which causes problems in repaying.

 

What are the features of Credit Card Settlement?

The following are some of its main features:

• The process of Credit Card Settlement is easy. You have to contact Home Credit and agree to their terms.

• The settlement process is completed quickly, which helps you stabilize your financial situation.

• After the settlement, Home Credit issues a No Due Certificate, which proves that your loan is now complete. 

• Doing a Credit Card Settlement can affect your credit score. It is recorded as “settled” in your credit report, which can create difficulty in taking loans in the future.

• This option is available only when the borrower is completely unable to repay the loan and has used all other options.

• In Credit Card Settlement, you do not have to repay the entire loan amount. You can settle your loan by paying only a certain part.

 

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

Although both Personal Loan settlement and Credit Card 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

 

What documents are required to do a Credit Card Settlement?

If, for some reason, you are not able to pay your credit card in full, then a Card 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 Credit Card 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

During a Card 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 a Card Settlement done, then you will 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 to do before doing a Credit Card Settlement?

Below are some steps that should be followed before a Card Settlement:

• First of all, check your income, expenses, and all other debts properly. Know how much you can repay.

• Before a Credit Card Settlement, share your problem with the bank or lender. 

• Sometimes, they can offer you a better solution, such as reducing the EMI or increasing the loan term.

• Contact a financial advisor or expert. They can help you make the right decision and explain how Credit Card Settlement will affect your credit score.

• If you decide to do a Card Settlement, read the terms and conditions given by the bank carefully. Make sure that you are not being charged any hidden fees.

• Doing a Card Settlement can reduce your credit score. This can make it difficult to get a loan in the future. Make a decision keeping this in mind.

• Card Settlement should be the last option. Before that, consider other options like refinancing, reducing EMIs, or asking family and friends for help.

 

What is the Credit Card Settlement Process?

The process of Card Settlement is explained below in simple terms:

• First, determine why you are unable to repay the entire loan amount. Check your financial situation and payment capacity.

• Contact Home Credit customer care or the nearest branch. Tell them about your current financial problems and discuss the option of Credit Card Settlement.

• Home Credit will understand your situation and make a settlement offer. This offer will be for repaying a part of the loan amount.

• Read the terms mentioned in the settlement offer carefully. Make sure you understand how the settlement will affect your credit score and future loan eligibility.

• Once you accept the offer, repay the agreed settlement amount on time. This is usually a lump sum payment.

• After the payment, get a written proof (No Due Certificate) from Home Credit. This proof will be proof of the completion of your credit card settlement and will help avoid any dispute in the future.

• Check your credit report after the settlement. Make sure the credit card settlement details are recorded correctly.

 

What is the impact on the CIBIL score after a Credit Card Settlement?

A settlement can hurt your credit score. The impact can be seen in the following ways:

• After the settlement process, your credit report records that you have “settled” your debt. 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 settlement means that you have not repaid the entire debt, when you try to get a new loan in the future, banks may reject your application or offer you loans at higher interest rates by looking at your credit score and report.

• After settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors think 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 with your bank, you are not paying off the entire debt, but a certain amount that is less than the principal amount. This is viewed 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.

 

What is the difference between Credit Card Settlement and Full Payment?

The use of credit cards has become very common nowadays, but it is very important to manage it properly. When a person spends with a credit card, he has to pay on time. If the payment is not made, then interest and penalty are added to it, increasing the debt amount. In that case, two options are available – Credit Card Settlement and Full Payment.

What is Credit Card Full Payment?

Full payment is when you settle the total amount due on your credit card on time. This maintains your credit score in a good position and helps you obtain a loan easily in the future.

Advantages of Payment in Full:

• The credit history is good.
• Penalty and interest are not incurred.
• Loans or new credit cards can be easily acquired in the future.

What is Credit Card Settlement?

When a person is unable to repay the entire outstanding amount of his credit card, the bank may offer a settlement. In this, you are allowed to pay less than the full outstanding amount, and the bank accepts this amount. However, it gets recorded as “Settled” in your credit report, which may make it difficult to get loans or other credit facilities in the future.

Disadvantages of settlement:

• Hurts my credit score.
• It may cause difficulty in getting a loan or credit card in the future.
• You may receive legal notices or recovery calls from the bank.

 

What are the benefits of doing Credit Card Settlement?

It has many benefits, which are as follows:

• Through Card Settlement, the borrower gets a chance to get a part of his loan waived off.

• This helps in improving his financial condition and gives him relief from a heavy financial burden.

• Card Settlement improves the financial condition of the borrower.

• With Credit Card Settlement, you can manage your income and expenses better and avoid a financial crisis in the future.

• Although Card Settlement can affect the borrower’s credit score, by following the agreement on time and in the right manner, he can gradually improve his credit score.

• The heavy burden of debt often causes mental stress. Loan Settlement gives relief to the borrower from this stress, and he can get mental peace in his life.

 

What are the disadvantages of doing a Credit Card Settlement?

It has many disadvantages, which are as follows:

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

• A Card Settlement may create difficulties in taking new loans or getting credit cards in the future.

• Due to Credit Card Settlement, the borrower’s relationship with the bank and other financial institutions may deteriorate.

• Through Card Settlement, the entire loan of the borrower is not waived off. He still has to pay some amount, which may affect his financial position.

• During Card Settlement, the agreement between the bank and the borrower contains many conditions. The borrower is required to follow these conditions, which may limit his freedom.

• After a Card Settlement, the borrower’s credit score may be affected.

 

Conclusion

The use of credit cards helps in fulfilling our financial needs, but it is very important to manage it properly. Both full payment and settlement options are useful when we have to pay the credit card dues, but there is a big difference between these two.

If you make full payments on your credit card every month, then it keeps your financial position strong. You do not have to pay any additional interest or penalty, and your credit score (CIBIL Score) also remains good. With this, you can easily get loans, credit cards, and other financial facilities in the future.

On the other hand, Card Settlement is an option when you are unable to pay the full dues due to some reason. In this situation, the bank accepts a lower amount by making a compromise with you, but it gets recorded as “Settled” in your credit report. This damages your credit score and may cause problems in taking any kind of loan in the future.

 

Frequently Asked Questions (FAQ’s)

 

Que: Will my CIBIL score be affected by doing a credit card settlement?

Ans: Yes, settlement gets a “Settled” tag on your credit report, which may reduce your CIBIL score and make it difficult to get a loan in the future. 

Que: Can I get a loan or credit card again after credit card settlement?

Ans: After settlement, banks and financial institutions may consider you a risky customer, which may make it difficult for you to get a loan or a new credit card. However, over time, if you improve your credit history, you may get a loan.

Que: Do banks always agree to a settlement? 

Ans: No, banks agree to settlement only when they feel that the customer is unable to repay the full amount and needs relief. 

Que: Will I get any additional benefits by making full payment?

Ans: Yes, making full payment will not only keep your credit score good but will also increase your chances of getting better loan offers, chances of increasing your credit limit, and getting loans at lower interest rates.

Que: Can my CIBIL score improve after settlement?

Ans: Yes, if you pay your bills on time in the future and maintain financial discipline, then gradually your CIBIL score can improve.

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