How to settle a personal loan without spoiling your CIBIL score?

Summary

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.

Introduction

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.

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. Therefore, it should be adopted only as a last option.

How does a Personal Loan Settlement work?

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”.

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

Let us understand both of these in detail:

• Personal Loan Settlement: In this, the borrower negotiates with his bank so that some part of the total loan amount can be waived off. This means that the borrower has to pay less than his original borrowing. This process is adopted when the borrower is unable to repay the entire loan amount and tries to settle with the bank.

• Credit Card Loan Settlement: Credit Card Loan Settlement is a process through which you can reduce your credit card dues by negotiating with the bank or credit card provider. When you are unable to pay the entire outstanding amount of your credit card and your financial situation becomes critical, the bank or credit card company agrees with you. In this, you are given a chance to end your liability by paying a certain percentage of the principal amount.

What documents are required for a Personal Loan Settlement?

The following documents are required:

• Aadhar Card, PAN Card, Passport, or Driving License, etc.

• Salary slips, income tax returns, bank statements, etc.

• Personal Loan Settlement letter, loan details, payment receipts, etc.

• Investment documents, property documents, insurance policies, etc.

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.

• Sign up if you already have an account, then log in. Otherwise, create a new account.

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 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 problems or reduction in income).

Upload the required documents

• 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 in online payment mode.

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

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.

How to choose the service of Personal Loan Settlement?

Here are some important points to consider that will help you choose the right personal loan settlement service:

Check the service provider’s credentials

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.

Check the service charges and other expenses

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.

Understand the settlement process

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.

Make sure they are legally competent

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.

Consider other solutions as well

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.

Customer support and communication

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.

Join our service

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.

How long does it take for a Personal Loan Settlement to be processed?

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.

How to settle a personal loan without spoiling your CIBIL score?

Here are some ways you can settle a personal loan without spoiling your CIBIL score:

Consider loan restructuring

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.

Negotiate with the bank and extend the repayment period

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.

Opt for partial payment

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.

Negotiate to reduce the interest rate

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.

Try to close the loan straightaway

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.

Settle smartly

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.

What are the advantages and disadvantages of Personal Loan settlements?

It has the following advantages and disadvantages:

Advantages (Pros)

• 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.

• 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.

Disadvantages (Cons)

• 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.

• 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.

Conclusion

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.

Frequently Asked Questions (FAQ’s)