How to settle fraudulently sanctioned loans?

Summary

Fraudulent loans that were approved are loans (Loan Settlement) borrowed in your name and details without your knowledge. It can negatively impact your credit history, financial standing, and state of peace of mind. However, if you respond quickly and follow the right course of action, you can shield yourself and put the situation right.

Start by being calm and putting together all the evidence that shows you did not borrow or use the loan. Report the case to the bank or financial institution involved immediately and make your complaint with all the proof. Parallelly, make an FIR to the police station, which is strong legal support for your case. Moreover, inform fraud bureaus such as CIBIL, Experian, etc., so they can put a fraud notice on your credit report and prevent further harm.

Follow up regularly with the bank and the police. Log all your letters, emails, and calls. If the bank is not being cooperative or simply taking too long, you might approach the Banking Ombudsman or try legal action by going to the consumer court or civil court.

Introduction

Sometimes, people find out that a loan has been borrowed in their name without them knowing. This can happen through fraud, mistakes, or misuse of personal information. It is a pretty stressful and scary experience because it affects your financial life, credit report, and peace of mind. If you sit tight, you could end up repaying a loan you never took, or worse, be involved in illegal activities. It is therefore vitally important that you move and make intelligent choices the moment you detect a fraudulently authorized loan.

First of all, you should be cool and take every bit of proof that you couldn’t have applied for or received the loan. Such proof might be your bank statements, emails, mobile texts, or bank letters. After collecting the proof, you must visit the bank or the financial institution that provided the loan at once. Describe your situation concisely and politely. Show them all the evidence in favor of the fact that you are a victim of fraud.

You have to report the incident to the police as well. This is called an FIR (First Information Report). The FIR will act as official proof that you have informed the police about the fraud. It will protect you from a legal standpoint and show that you do not own the loan. Along with the police, you have to report to credit agencies like CIBIL, Experian, and Equifax. 

Many times, banks take their time to ask questions. In this case, you have to keep calling the bank and taking notes on all your conversations. If the bank admits that the loan was fraudulently approved, it will cancel or reverse the loan. 

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 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 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 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 settle fraudulently sanctioned loans?

Discovering you’ve had a loan taken out in your name against your will is scary. Do not panic — by correctly doing things promptly, you can prevent things and fix them properly. Follow these instructions to do that:

1. Stay Calm and Collect Proof

Don’t panic first.

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Begin to collect as much evidence as possible to demonstrate that you did not receive or utilize the loan.

This may involve:

• Bank account statements
• E-mail records
• SMS messages
• Credit report copies of the bogus loan
• ID proofs where the signature is not similar (if required)

Tip: Make copies of everything — emails, posts, screenshots.

2. Get in touch with the Bank or Lender immediately

• Call or go to the bank or lending firm the loan was issued by.
• Inform them clearly that the loan is a forgery.
• Show them all the evidence you have accumulated.

Request from them:

• Promptly freeze the loan account.
• Initiate an internal investigation.
• Important: Get a written receipt from the bank stating that you are making a complaint against the fraud.

3. File a Police Complaint (FIR)

Finally, go to your local police station and report an FIR (First Information Report).

• The FIR should contain
• That you are a victim of loan fraud
• The details of the fraudulent loan account
• That you were not involved in it

Tip: Photocopy the FIR — it is extremely important for all the subsequent processes.

4. Credit Bureau Reporting

Send a letter to credit bureaus such as:

• CIBIL
• Experian
• Equifax
• CRIF High Mark

Inform them of the fraudulent loan and enclose a photocopy of your FIR and complaint to the bank.

Request them to:

• Put a “Fraud Alert” on your credit report.
• Investigate the loan list.ng
• Rectify your credit report on verification.

5. Regular Follow-ups

Police and bank investigations take time.

Regular follow-up:

Call/email the bank that reported the fraud to you weekly.

Stay in touch with the investigating office.

Keep a diary of each contact (date, person contacted, substance of conversation)

Tip: A Friendly but firm follow-up will accelerate the process.

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

Finding out that a loan has been illegally approved in your name is one of the most frightening experiences in life. It can affect your peace of mind, financial well-being, and credit history. But the good news is: you can fight back and clear your name if you do it correctly and on time.

The very first and most important thing to remember is: don’t panic. Rather, stay calm and focus on gathering all the proof that establishes you as innocent. Contact the concerned bank or lender immediately and report the fraud. You need to lodge an FIR with the police, as it is your best legal proof. Moreover, make sure that you inform credit bureaus so that they put a fraud alert on your credit history and bar any further damage to your creditworthiness.

You must keep harassing the bank and police since fraud cases might take time to be solved. Never rely on verbal guarantees — get everything put in writing. If the need arises, approach senior authorities like the Banking Ombudsman or even the courts. Keep in mind that the law is with you when you are indeed a victim.

Frequently Asked Questions (FAQ’s)