How to handle bank harassment during loan settlement?

Summary

It is very stressful to get harassed by the bank during repayment of a loan, but do not forget that you also have some legal rights. If, due to personal or financial reasons, you are unable to repay your loan, you can negotiate for the settlement of the loan. There are certain banks or their collection agencies that would harass or intimidate you for payment in advance. They can call you continuously, abuse you, threaten to sue you, or come to your residence or office.

You should not get angry and never speak rudely. Keep in mind that Reserve Bank of India (RBI) regulations do not permit banks and recovery agents to harass you. They have to speak to you respectfully and in a manner that befits they should. If they harass you, you can complain to the bank or agent.

When making a settlement of a loan, always put things in writing. Keep records of email, letter, and telephone details. Never agree to any settlement offer over the phone — ask them to do it in writing. Also, always check the identity of any person who says they are from the bank before entering into any discussion.

Introduction

It is not easy to manage a loan, particularly when an individual is already financially strained. Sometimes individuals cannot pay back their loans within the stipulated time due to loss of job, sickness, business failure, or personal issues. Under such circumstances, the borrowers attempt to pay back their loans to the bank so that they are not subjected to further tension and legal issues. Settlement of the loan is a procedure by which the borrower and the bank agree, most often for a lesser amount, so that the loan account is settled. 

Most of the individuals lament that they are being harassed by banks or recovery agents at the time of settlement of loans. These harassments may range from constant phone calls, threatening communications or letters, home or workplace visits, and even public humiliation. They are all forms of mental torment and deliver a setback to one’s pride and ego. Recovery agents are also prone to being short-tempered in their communication or attempting to intimidate through threats of litigation, police report, or property seizure. 

One should keep in mind that while banks can certainly recover their funds, they are also subject to certain guidelines and regulations released by the Reserve Bank of India (RBI). Harassing any borrower is certainly not allowed. Borrowers are legally entitled and can go to the authorities if they feel they are being subjected to undue harassment. 

In this article, through, we will let you know how to safeguard yourself against such harassment, how to behave while paying off a loan, what your rights are, and how to report a complaint if things go in the wrong direction. Our purpose is to help you practically and easily, so you can comfortably repay your loan and have your peace of mind restored. 

What is a Loan Settlement?

Loan Settlement is a process in which you negotiate with your creditor to forgive a part of the outstanding amount on your Loan 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 Loan 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 a Loan Settlement.

What are the reasons for doing a Loan 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 a Loan 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 to do before doing a Loan Settlement?

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

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

• Before a Loan 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 a Loan Settlement will affect your credit score.

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

• Doing a Loan 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.

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

What documents are required to do a Loan Settlement?

Let us know what documents are required for a Loan Settlement.

1. ID Proof

• Aadhar Card
• PAN Card
• Passport
• Driving License
• Voter ID

2. Address Proof

• Aadhar Card (if it has the correct address)
• Electricity or Water Bill
• Copy of Bank Passbook or Bank Statement
• Rent Agreement (if you live on rent)

3. Income Proof (if required)

• Salary Slip (if you are employed)
• Bank Statement (last 6 months)
• Copy of Income Tax Return (ITR)
• Business Documents (if you are a businessman)

4. Loan Statement

You will have to provide the Loan statement to give the correct information about your outstanding balance. The bank can also generate this statement itself, but sometimes they ask you for a copy of it.

5. Settlement Request Letter

If you are approaching the bank for settlement on your own, you will have to give a written Settlement Request Letter in which you can explain:

• Why do you want a settlement?
• What is your financial situation?
• How much can you pay as a one-time payment?

6. Settlement Offer Letter given by the bank

When the bank agrees to the settlement, it gives you a Settlement Offer Letter. Read it carefully and confirm the amount and terms mentioned in it.

How to apply for a Loan Settlement?

If you are unable to pay your Loan dues and are troubled by heavy interest rates, a Loan Settlement can be a possible solution. Under this process, the bank or Loan company can waive off part of your total outstanding amount and give you the option to make a lump sum payment (One-time Settlement). However, this can affect your CIBIL score, so adopt it only as a last option.

Step-by-step process to apply for Loan Settlement

• First of all, decide that you are not in a position to pay the entire Loan dues.

• Check your income and expenses and decide how much you can pay at most.

• Talk to the customer care of your bank or Loan company and tell them about your current financial situation.

• Ask for a settlement offer from the bank and start the conversation.

• The bank will propose a settlement amount, which will be lower than your outstanding amount.

• If you don’t accept this amount, negotiate with the bank and attempt to lower the amount based on your capacity to pay.

• After the bank and you reach an agreement on a specific amount, ensure that you receive a written settlement letter.

• It should explicitly state the settlement terms, payment dates, and other conditions.

• After completing the settlement, pay the amount in full within the given time.

• Get a No Due Certificate (NOC) or Final Settlement Letter from the bank after the payment.

• After the settlement, make sure the bank updates the “Settled” status in your CIBIL report.

• This can affect your credit score, so inculcate good financial management habits to improve it in the future.

What is the impact on the CIBIL score after a Loan 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 Loan 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, Loan, 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.

How to handle bank harassment during loan settlement?

1. Be Cool and Do Not Panic

Be cool in the first place. Banks or recovery agents may try to scare you to pay early. Do not panic or get angry. Being calm makes you think straight and respond wisely.

2. Know Your Rights

You must be aware of your rights as a borrower:

• As per RBI guidelines, recovery agents cannot harass, abuse, threaten, or shame borrowers publicly.

• Banks may only call you during the hours between 8 AM and 7 PM.

• They cannot threaten imprisonment or seizure of your property outside the legal process.

• You have the right to complain if you feel harassed.

3. Correspond in Writing

• Correspond with the bank always in writing or by email. Never verbal promises or negotiate over the telephone.

• Settlement offers must always be in writing.

• Document all phone calls, messages, and emails. This will help you if you need to complain in the future.

4. Ask for a Loan Settlement Offer

Don’t sit back and let the bank ignore you:

• Simply visit the branch in person.

• Explain your situation truthfully — loss of job, illness, etc.

• Ask for a settlement or restructuring offer.

• Banks will accept a reduced payment if they believe the borrower just cannot pay the full amount.

5. Never Deal with Enigmatic Recovery Agents

If someone calls or visits you claiming to work for the bank:

• Ask them for their ID card and authorization letter.

• Check their identity with your bank. Never pay cash to any recovery agent directly.

6. File a Complaint if Harassment Continues

If the harassment does not stop:

• Write to the bank’s grievance redressal officer.

• If nothing materializes, you can file a complaint with the Banking Ombudsman of the RBI.

• You can approach the police too, if you are being threatened or abused.

What are the advantages (Pros) of doing a Loan Settlement?

Let us know what the benefits of doing a Loan Settlement are:

• Mental tension grows through rising debt and bank calls. On settlement, you are free from this concern, and you may concentrate on a better financial status again.

• If your Loan dues have become very high, and you are unable to repay them, then a settlement can give you great relief.

• When you do not pay your Loan continuously, the bank can send a legal notice to you and can also send a recovery agent.

• The interest on Loans is very high, which can be up to 30-45% per annum. If you are not paying on time, the interest and late payment fees keep increasing continuously.

• While a settlement will bring down your CIBIL score, provided you exercise financial responsibility after the settlement and settle your other loans and bills punctually, you will improve your score over time.

• In a Loan Settlement, you pay a specific sum at one time, which settles your debt entirely. It may be helpful to the people who desire to come out of debt by increasing a little money at a time.

What are the disadvantages (Cons) of doing a Loan Settlement?

Let us know in detail what the disadvantages of doing a Loan Settlement are.

• Doing a Loan Settlement can spoil your relationship with the bank. The bank sees it as if you have not fulfilled your financial responsibilities completely, due to which you may face problems in banking services in the future.

• The biggest disadvantage of a Loan Settlement is that it spoils your CIBIL score. When you settle with the bank and pay a lesser amount instead of paying the entire dues, the bank reports it in “Settled” status. This status can remain in your credit report for up to 7 years, which may make it difficult to get a loan or a new Loan in the future.

• If you have done a Loan Settlement once, banks and other financial institutions may consider you a “high-risk customer”. This may cause problems in getting a home loan, personal loan, or business loan, or the bank may give you a loan at a higher interest rate.

• In some cases, when you go to take a loan from another bank in the future, the bank may ask you to repay the entire previous settlement amount after looking at your credit history. That is, if you had settled by paying Rs 50,000 on an outstanding amount of Rs 1 lakh, then the new bank can demand the remaining Rs 50,000 from you.

• If you have settled a Loan with a bank, then the same bank can refuse to issue you a Loan again in the future.

Conclusion

Dealing with bank harassment at loan settlement can be stressful, but always keep in mind — you have rights, and you are not alone. Anyone can fall short financially. Loss of employment, illness, business loss — these are everyday scenarios, and banks must realize this. It is illegal and unjust to threaten or harass you by banks or collectors simply because you are unable to pay a loan.

The most significant and first thing to remember is that you have to stay calm and very well informed about your rights. Fear should never lead you at any time. Banks are under instructions from the Reserve Bank of India (RBI). Banks should never humiliate, scare, or intimidate you into making the incorrect payment. You can lawfully protest and act if banks engage in such activities. Keep all your communiques — letters, emails, phone recordings — so that you are adequately armed if you are forced to prove yourself.

At the time of harassment, never flee from the scene or try to escape. Approach the bank yourself, outline your position, and insist upon a reasonable settlement. The majority of banks will be open to listening if you are honest and ready to settle the issue. A courteous, professional attitude is far better than rage or silence. If the bank or its agents persist in pestering you, don’t hesitate to exercise your legal recourse — file a complaint with the bank’s grievance officer, go to the RBI Banking Ombudsman, or go to the police if necessary.

Frequently Asked Questions (FAQ’s)