How to settle your personal loan with Union Bank of India

settle your personal loan with Union Bank of India (UBI) can be a viable solution if you’re struggling to meet your financial obligations. Personal loans are generally unsecured, meaning they don’t require collateral, but this also means that lenders like Union Bank of India may take aggressive steps to recover overdue amounts. When you are unable to repay the loan due to financial difficulties, a loan settlement can help. In this process, you negotiate with the bank to pay a portion of the outstanding loan, while the bank forgives the remainder. Although this may provide short-term relief, it comes with long-term consequences, particularly for your credit score.

This guide will help you understand how to settle your personal loan with Union Bank of India, the steps involved, and the impact it will have on your financial health.

What is Personal Loan Settlement?

Personal loan settlement refers to an agreement where the borrower (you) and the lender (Union Bank of India) agree on a reduced amount to close the loan. You pay a portion of the outstanding balance, and the remaining amount is written off by the bank. This process is usually considered by borrowers who are facing financial hardships and cannot repay the loan in full. However, this route negatively impacts your credit score and your ability to borrow in the future.

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Why Consider Loan Settlement with Union Bank of India?

There are various reasons why you might opt for a loan settlement rather than continuing with your EMIs:

• Job Loss or Reduced Income: If you’ve lost your source of income or your salary has been reduced, continuing with regular EMI payments may be challenging.
• Medical Emergencies: Unexpected medical expenses can drain your savings and affect your ability to make loan repayments.
• Business Downturn: If you are self-employed or run a business that’s experiencing financial difficulties, paying off personal loans may become burdensome.
• Multiple Loan Repayments: Managing multiple loans or debts can cause financial strain, making it difficult to meet all payment obligations.

In such situations, negotiating a loan settlement with Union Bank of India can provide immediate financial relief.

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Steps to Settle Union Bank of India Personal Loan

If you decide that settling your loan with Union Bank of India is the best course of action, follow these steps carefully:

Step 1: Evaluate Your Financial Situation

Before approaching the bank, it’s essential to assess your financial situation. Calculate how much you can afford to pay toward settling the loan. Create a clear picture of your income, expenses, and other financial obligations to understand how much you can realistically offer for settlement.

Step 2: Contact Union Bank of India

Once you’ve reviewed your finances, contact Union Bank of India’s loan recovery department. You can either visit the nearest branch or call the customer service helpline to explain your financial difficulties. Communicate openly about your inability to continue with regular EMI payments and request information about settlement options.

Step 3: Submit Financial Hardship Proof

The bank will likely request documentation proving your financial hardship. Prepare the following documents to support your case:

• Income proof or loss of income evidence: Submit documents like a job termination letter or proof of a reduced income.
• Medical bills: If health issues are causing financial strain, provide supporting medical bills and reports.
• Bank statements: Show a decline in your cash flow or savings.
• Other loan or debt-related documents: If you’re dealing with multiple debts, share those details to make your case stronger.

Step 4: Negotiate Settlement Terms

Once your financial hardship is acknowledged, the bank will propose a settlement amount, usually a percentage of the total outstanding loan balance. This could range between 40% to 80% of the loan amount. You can negotiate this amount based on your ability to pay. Be realistic and transparent during the negotiations to arrive at a mutually agreeable settlement.

Step 5: Finalize the Agreement and Make the Payment

Once both parties agree on the settlement amount, Union Bank of India will provide a written agreement. Make sure to review this agreement carefully before signing it. The settlement amount is usually expected to be paid in a lump sum. After making the payment, ensure that you receive a No Dues Certificate from the bank, which serves as official proof that the loan has been settled and no further payments are due.

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Union Bank of India’s Personal Loan Settlement Policies

Union Bank of India follows specific policies and guidelines for loan settlement, generally aligned with Reserve Bank of India (RBI) guidelines. Here are a few important points:

• Eligibility for Settlement: Generally, personal loans that have become Non-Performing Assets (NPA), i.e., loans overdue for more than 90 days, are eligible for settlement. However, the bank may consider settlements in other cases based on the borrower’s financial hardship.
• Documentation: Borrowers must provide valid documentation supporting their financial distress.
• Settlement Amount: The final settlement amount will depend on the borrower’s financial situation and the bank’s evaluation of the case.

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How Loan Settlement Affects Your Credit Score

While loan settlement might offer immediate relief from financial stress, it significantly impacts your credit score and your ability to borrow in the future.

• Drop in Credit Score: Settling a loan negatively affects your credit score as the loan will be marked as “settled” rather than “closed”. This indicates to future lenders that you were unable to repay the loan in full.
• Impact Duration: The settled status will remain on your credit report for up to 7 years, making it difficult to obtain loans during this period.
• Higher Interest Rates on Future Loans: Even if you do qualify for loans after a settlement, expect higher interest rates and less favorable loan terms due to the negative impact on your credit report.

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Alternatives to Personal Loan Settlement

Before settling your loan with Union Bank of India, consider the following alternatives to avoid the negative impact on your credit score:

A. Loan Restructuring

Requesting loan restructuring from the bank may result in an extension of your loan tenure or a reduction in your interest rate, making your EMIs more manageable without defaulting on the loan.

B. EMI Moratorium

In times of financial hardship, Union Bank of India may offer an EMI moratorium or payment holiday, allowing you to defer your loan repayments for a few months without being classified as a defaulter.

C. Debt Consolidation

If you are struggling with multiple loans, consolidating them into a single loan with a lower interest rate can help. This allows for easier management of repayments and avoids missing EMIs on your personal loan.

D. Borrowing from Friends or Family

If possible, consider borrowing from family or friends to clear the loan and avoid the negative implications of settlement.

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Conclusion

Settling a personal loan with Union Bank of India is an option that provides immediate financial relief in times of distress, but it comes with long-term consequences, particularly for your credit score. Before opting for settlement, carefully consider alternatives like loan restructuring, EMI moratorium, or debt consolidation. If settlement is your last resort, follow the steps outlined above to negotiate the best possible terms and ensure that you receive a No Dues Certificate to close the loan. While loan settlement might resolve your immediate financial difficulties, be prepared for its lasting effects on your creditworthiness.

Frequently Asked Questions (FAQ’s)