Can Financial Advisors Settle Your Loan?

Summary

In today’s time, when most people are associated with some kind of loan, loan settlement emerges as an important option in case of financial crisis. However, this is not an easy process and settlement done without proper advice can increase financial problems in future. For this reason, the role of Financial Advisors becomes very important.

Financial Advisors are experts who give the right advice by examining your income, expenses, debt, and financial situation. Along with this, they help you understand whether loan settlement will be beneficial for you or not. If yes, then they assist you in negotiating with the bank, getting the documents prepared, and towards a better agreement.

Apart from this, they can also suggest that loan restructuring, reducing the interest rate, or increasing the EMI will be more appropriate for you. In this way, you can get relief even without the settlement.

However, it is important to keep in mind that loan settlement affects your CIBIL score and there may be difficulties in taking a loan in future. Therefore, it is wise to seek advice from a financial advisor before taking any step.

Introduction

In today’s time, most people are associated with some type of loan. Be it a personal loan, home loan, education loan, or credit card loan – every person needs a loan at some point in their life. But when it becomes difficult to repay the loan and the interest keeps increasing, then the biggest concern is – how to settle the loan? In such a situation, many people get upset and start looking for a way, and this is where the role of a Financial Advisor comes to the fore.

Now the question arises – can Financial Advisors settle your loan? The answer to this question is not easy, but we will try to understand it in simple language.

First of all, it is important to understand who financial advisors are. Actually, Financial Advisors are experts who examine your financial situation and advise you in financial decisions. These include topics related to investment, tax planning, insurance, retirement planning and loan. These experts work to show the right direction keeping in mind your financial goals.

In today’s article, we will know in detail under what circumstances Financial Advisors can help you, how they talk to the bank, and what are their advantages and limitations. If you too are struggling with loan complications and are looking for a solution, then this article can prove to be very helpful for you.

Who are Financial Advisors?

In today’s fast-paced life, it has become very important to take the right financial decisions. In such a situation, a person who can give us the right advice related to our money proves to be very helpful. This is where the role of a Financial Advisor begins. In simple words, a Financial Advisor is an expert who helps you make a better financial plan by taking information related to your income, expenses, investments and loans.

Apart from this, a financial advisor also tells you how you can properly fulfill your goals, like buying a house, children’s education, or retirement planning. They also advise in areas like insurance, mutual funds, the stock market, tax planning, and loan management.

Along with this, they examine your current financial situation and understand which areas need improvement. Then, they guide you in that direction so that you can become financially strong.

What is 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.

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

Let us understand both of these in detail:

• 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 amount borrowed. 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 Loan Settlement?

The following documents are required:

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

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

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

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

How do I apply for a 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 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 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 Loan Settlement affect your credit score?

The impact can be seen in the following ways:

• After a 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 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 Loan Settlement process, your credit report will be updated 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 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 long does it take for a 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.

What is the difference between Loan Settlement and Loan Closure?

Although the purpose of both is to end the loan, there are many differences between the two.

Loan Settlement:

Settlement occurs when the borrower cannot pay the entire loan amount and reaches a settlement with the bank or financial institution. In this situation, the bank or institution takes a lesser loan amount from the borrower and waives off the rest of the loan. In this process, the borrower has to pay a lump sum amount, which is less than the entire loan. This usually happens when the borrower is going through a financial crisis or their repayment capacity is not being met.

• What is forgiven? The rest of the loan.

• When does it happen? When the borrower does not have the full amount to repay the loan.

• Advantages: The borrower gets a part of the loan forgiven.

• Disadvantages: The CIBIL score may be negatively affected, and it may be difficult to take a loan in the future.

Loan Closure:

Loan closure occurs when the borrower pays the entire loan amount, which includes both principal and interest. In this case, the loan is fully repaid, and the loan is closed by the bank or financial institution. When the loan is fully paid, the borrower is provided with a No Objection Certificate, which certifies that the entire loan amount has been repaid and the loan has been closed.

• Who is forgiven? There is no waiver, the entire loan amount is paid.

• When does it happen? When the borrower repays the entire amount.

• Advantages: The CIBIL score is positively affected, and there is no problem in taking loans in the future.

• Disadvantages: The entire amount has to be paid, which can sometimes be financially difficult.

Key Differences:

• In a loan settlement, the borrower gets some amount of the loan waived off, while in a loan closure, the entire amount has to be repaid.

• The process of loan settlement usually happens when the borrower does not have the money to repay the entire loan, while loan closure happens when the borrower repays the entire amount.

• Loan settlement can hurt the CIBIL score, while loan closure does not affect the score.

What are the advantages and disadvantages of Loan Settlements?

It has the following advantages and disadvantages:

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

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

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

• Loan Settlement improves the financial condition of the borrower.

• By doing a 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.

Disadvantages

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

• Loan Settlements may create difficulties in taking new loans or obtaining credit cards in the future.

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

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

• Through 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 Loan Settlement, the agreement between the bank and the borrower has many conditions. The borrower is required to follow these conditions, which can limit their freedom.

How does settlement happen after a loan default?

Let us know how settlement happens after a loan default – step-by-step:

1: Check your financial situation

First of all, you have to understand yourself why you are not able to repay the loan – have you lost your job? Is there a medical emergency? Or have you suffered a loss in business?

2: Contact the bank

To start the settlement process, you have to contact the bank or financial institution. You can do this work yourself or you can also take the help of a loan settlement advisor.

3: Give a written application

You have to give a written letter (application) to the bank in which you state the reason why you are unable to repay the loan, and you are requesting a settlement.

4: Settlement Offer by the bank

If the bank feels that your financial condition is weak and it is difficult to recover the full amount of the loan, then they can give a settlement offer. In this, they can say that if you pay ₹3 lakh instead of ₹5 lakh, they will close the case.

5: Negotiate

Settlement is a process of negotiation. If you do not agree with the bank’s offer, you can negotiate and reduce it further.

6: Take a written agreement

Whatever settlement is decided by the bank, take it in the form of a written agreement.

7: Make payment and take NOC

After the settlement amount is decided, you have to pay it within the stipulated time. After payment, do not forget to take NOC (No Objection Certificate) and Loan Closure Letter from the bank.

Can Financial Advisors settle your loan?

Yes, Financial Advisors can help you settle your loan, but certain scope and limitations need to be understood.

Let’s understand in detail –

1. What is the role of a Financial Advisor?

Financial Advisors are financial experts who look at your income, expenses, debt, and future goals and give you the right advice. They can also guide you in loan-related problems.

When you are unable to repay the loan, a Financial Advisor helps you check:

• Are you eligible for settlement?

• Can you talk to the bank to reduce the EMI?

• Will loan restructuring be a better option?

• How will the settlement affect your credit score?

2. Do they negotiate with the bank?

Yes, many experienced Financial Advisors can negotiate with the bank or NBFC as your representative. They:

Prepare your documents

• Explain your financial situation to the bank.

• Try to settle the loan at the lowest possible amount.

• Advise to waive off interest or penal.

3. What to look out for?

• A financial advisor is not a legal agent, so he is only a medium of advice and communication; the decision rests with the bank.

• The settlement is recorded as a “Settled” tag in your CIBIL report, which may make it difficult to get a loan in the future.

• Be cautious if any advisor asks for a high fee upfront or makes an illegal promise.

Conclusion

So far, we have understood how financial advisors can help us with our loan problems. Especially when it comes to loan settlement, it is a decision that can prove to be dangerous if taken without the right advice. This is why the role of an experienced financial advisor becomes very important.

First of all, you should know that financial advisers can only provide you with guidance and advice. They do not make decisions as to whether or not the bank will provide you with a loan settlement. But, they can assess your financial status and inform whether settlement is best for you or not. Also, they can suggest other options that are better and less harmful than settlement, such as loan restructuring, appealing for a reduction in interest rate, or extending the EMI tenure.

Also, if loan settlement is the only option left, a financial advisor can help you negotiate with the bank in the right way. They get the documents prepared properly, explain your current financial situation to the bank on your behalf, and try to keep the settlement amount as low as possible.

Frequently Asked Questions (FAQ’s)