Can I get a loan again after a loan settlement?

Summary

It is not simple to avail a loan once again after settlement of the loan, but it is not also impossible. When an individual settles a loan, it negatively affects his credit report and CIBIL score. Banks and financial institutions treat such customers as high risk and do not like to provide new loans.

Settlement means that the borrower made a compromise with the bank instead of repaying the entire loan, causing some loss to the bank. This is the reason why banks avoid giving loans to such customers in the future.

However, if you take proper steps to improve your credit score, make all payments on time, and stabilize your financial position, then you can get a loan after some time.

First of all, you have to ensure that there are no mistakes in your credit report. Apart from this, strengthen your credit history again by using small loans or credit cards properly.

Introduction

Taking a loan has become a common thing in today’s time. Whether it is to buy a house, start a business, buy a car, or need money in an emergency, a loan has become an important part of people’s lives. But many times, due to financial problems, people are unable to repay the loan and are forced to choose the option of loan settlement.

Loan settlement means that the bank or financial institution does not take the entire outstanding amount from the borrower but settles on a certain amount. Although this settlement sounds relieving, it affects your credit score (CIBIL Score) and also affects the possibility of taking a loan in the future.

Now, the question arises: If you have settled a loan, can you get a loan again in the future? The answer is not straightforward because it depends on many factors, such as your credit history, bank policy, your current financial status, and how much you have improved your financial situation after settlement.

In this article, we will know in detail what the possibilities are for taking a loan again after loan settlement, what challenges can be faced to take a loan again, and what measures you can adopt to improve your credit profile so that you can easily get a loan in the future.

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.

How does a Loan Settlement work?

Loan Settlement companies negotiate with creditors to reduce the outstanding amount on unsecured loans such as credit cards, medical bills, or personal loans for you. Loan Settlement is not just an option for secured loans, such as mortgages or auto loans.

These offers only tempt banks if they think you won’t pay back the loan at all, so a Loan Settlement company will advise you to stop making payments on your loan immediately and instead open an escrow account and put your monthly payments into it. Once you have enough money saved up for a lump sum payment for a Loan Settlement, the Loan Settlement company facilitates the transaction.

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.

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 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.

How do you choose the loan settlement service?

If you, too, are stuck in the debt cycle and are under a financial crisis and wish to opt for the Loan Settlement path, then you can opt for our Loan Settlement service. We will assist you in settling your loan. Besides this, we give you relief from the loan burden in 6 – 8 months. If you wish to get more information regarding our service, then you may contact us.

Are there any other options apart from a Loan Settlement?

If you do not like the option of Loan Settlement, then you can also consider some other options, such as:

• Loan Rescheduling: In this, the bank reschedules the loan of the borrower, which makes it easier for the borrower to pay his installments. Under this, the monthly installments of the borrower are reduced, but the loan period is increased.

• Loan Refinancing: In this, the borrower repays the old loan by taking a new loan. This new loan is usually at a lower interest rate, which reduces the monthly installments of the borrower.

• Consolidation Loan: In this, the borrower combines all his small loans into a big loan and pays it in a single installment. This makes it easier for him to manage the loan, and the interest rate can also be reduced.

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 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 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?

If you join our service, we settle your loan within 6 – 8 months. But it also depends on your loan outstanding, how much loan is outstanding on you. If you have a large loan outstanding, then it may take us 1 to 2 years to settle it.

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 problem 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.

What are the advantages and disadvantages of Loan Settlements?

It has the following advantages and disadvantages:

Advantages (Pros)

• 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.

• Through 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.

• 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.

Disadvantages (Cons)

• In the future, the borrower may have difficulty in 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 his freedom.

• 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.

Can I avail myself of a loan again after the loan settlement?

Yes, I can avail a loan again even after loan settlement, but it is not that easy. When a person settles his loan, it affects his credit report, and his CIBIL score (Credit Score) decreases.

Financial institutions and banks look at your credit history when getting a new loan. If your report shows “Settled,” then banks will view you as a risky borrower and will not want to provide a loan.

When am I able to get a loan, even if I have a settlement?

If you have settled the loan and want to take a loan again in the future, then you can get the loan under the below-given circumstances:

• After improving the credit score – If you improve your credit score once more after loan settlement, then banks and NBFCs can offer a loan.

• Good income and stable job – If your current income is good and stable, then banks can provide you with a loan with some terms.

• Loans from non-banking financial institutions (NBFCs) – Sometimes, NBFCs can provide loans on fairly looser terms than banks, but the rate of interest could be higher.

• Taking a secured loan: If you take a gold loan, property loan, or a loan against FD, then banks may be more willing to give you a loan.

• On showing serious financial improvement – ​​If you have maintained regular transactions in your bank account and repaid other liabilities on time, then banks may reconsider your loan application.

How to improve your credit profile after settlement?

• Pay the EMI of all existing credit cards and loans on time.

• Do not take on a new credit card or loan without need.

• Check your credit report from time to time and correct any mistakes in it.

• If possible, repay the first settled loan in full and try to change the “Settled” status to “Closed”.

Conclusion

It is not completely impossible to get a loan again after loan settlement, but it can be a difficult process. When a person settles a loan, it directly affects his credit report and CIBIL score. Banks and financial institutions consider such customers as high risk because earlier they did not repay the entire loan but closed the loan by paying a lesser amount as per the agreement.

However, if you improve your financial position, make all your payments on time, a nd strengthen your credit score again, then your chances of getting a loan in the future can increase. For this, you have to control your expenses, repay credit cards and other financial liabilities on time, and improve your credit report.

If banks and other financial institutions are refusing to give you a loan without any security, then you can also adopt some other options, such as taking a secured loan, where you can get a loan against a property, fixed deposit (FD), gold, or other guarantee.

Frequently Asked Questions (FAQ’s)