Repaying a personal loan can be challenging, especially when unexpected financial difficulties arise. If you have taken a personal loan from Punjab National Bank (PNB) and are finding it difficult to continue with the EMI payments, settling the loan might be an option worth exploring. Personal loan settlement involves negotiating with the bank to repay a portion of the outstanding loan amount, and the rest of the loan is written off by the bank. However, it is important to note that settling a loan has a negative impact on your credit score and should be considered only when you are unable to repay the loan in full. This blog explains the step-by-step process of settle Punjab National Bank Personal loan with PNB, the impact on your financial health, and alternatives you may want to consider before opting for a settlement.
What is Personal Loan Settlement?
Personal loan settlement refers to an agreement between the borrower and the lender (in this case, Punjab National Bank) where the borrower pays a portion of the outstanding loan and the bank agrees to write off the remaining amount. This option is offered to borrowers who are unable to repay the entire loan due to financial hardships such as unemployment, medical emergencies, or reduced income. While this helps in avoiding legal action or further penalties, it is essential to understand that a loan settlement will have a lasting negative effect on your credit score and may impact future borrowing opportunities.
Why Should You Consider Loan Settlement?
Loan settlement is generally the last resort when repaying the loan becomes impossible. It is preferable to continue with your EMI payments, but certain situations may lead you to consider settlement:
- Job Loss: If you have lost your source of income and are unable to make the monthly payments.
- Business Failure: For self-employed individuals, a business downturn could affect cash flow, making it difficult to service the loan.
- Health Issues: Medical emergencies and hospitalization could drain your savings, making it difficult to continue paying your loan.
- Multiple Loans: If you are overwhelmed by multiple debts and cannot manage your loan repayment, settlement might be an option.
Before proceeding with a settlement, carefully evaluate all possible alternatives and the long-term impact on your finances.
How to Settle Punjab National Bank Personal Loan?
Settling your personal loan with Punjab National Bank involves a systematic process that includes financial review, negotiations with the bank, and making the agreed settlement payment.
A. Review Your Financial Situation
Before reaching out to Punjab National Bank, evaluate your financial position. Take note of your current income, expenses, and savings. It is important to have a clear understanding of your financial status to determine how much you can offer for settlement. You must have a realistic figure in mind when negotiating with the bank.
B. Contact Punjab National Bank
Once you have reviewed your finances, get in touch with PNB’s loan recovery department. You can either visit the nearest branch or contact the customer care service to discuss your financial situation. Make sure to clearly communicate that you are facing financial hardship and are unable to continue with the regular loan repayment schedule. Request a settlement option and explain the reasons behind your inability to repay the loan in full.
C. Submit financial hardship documents
Punjab National Bank will likely request documentation to support your financial hardship claim. This may include:
- Income proof: If you have lost your job, submit a termination letter or any other proof showing reduced income.
- Medical bills: If health issues are the reason for your financial troubles, provide hospital bills or medical certificates.
- Bank statements: Show the decline in your cash flow or proof of financial distress through bank statements.
- Other debt-related documents: If you have multiple loans, you may provide details of those as well.
D. Negotiate the Settlement Offer
After reviewing your financial situation, PNB will propose a settlement amount. Typically, the settlement amount is a percentage of the outstanding loan balance, usually ranging from 50% to 80% of the total due. You may negotiate this amount based on your financial capacity. It’s essential to be transparent and realistic during negotiations. You can ask for more favorable terms, but the final decision will rest with the bank.
E. Make the payment and obtain the No Dues Certificate.
Once you agree on a settlement amount, you will need to make the payment in a lump sum. After completing the payment, the bank will issue a No Dues Certificate, which officially closes your loan account. Ensure that you collect this certificate, as it is important proof that the loan has been settled and no further obligations remain.
PNB Loan Settlement Policies
Punjab National Bank has specific policies for personal loan settlements, which generally follow RBI guidelines. Some key aspects include:
- Eligibility: Settlement is typically offered to borrowers whose accounts are classified as Non-Performing Assets (NPA), meaning the loan has been overdue for more than 90 days.
- Documentation: The borrower must provide ample proof of financial distress, such as medical bills, proof of unemployment, or other relevant documents.
- Settlement Terms: The final settlement terms, including the percentage of the loan to be paid, will be decided based on the borrower’s financial status and the bank’s assessment.
Impact of Loan Settlement on Credit Score
The most significant disadvantage of settling a loan is the impact on your credit score. While the settlement relieves you from immediate financial stress, it marks your credit report with a “settled” status rather than “closed” or “paid in full.” Here’s how it affects your credit:
- Drop in Credit Score: Your credit score will drop significantly after the loan is marked as “settled.” The decrease can vary but is usually substantial.
- Future Loan Challenges: After a loan settlement, future lenders may view you as a risk, making it harder for you to secure new loans or credit cards.
- Long-Term Impact: A settled loan stays on your credit report for up to 7 years, affecting your ability to obtain favorable loan terms during this period.
Alternative Options to Loan Settlement
Before settling your personal loan, consider exploring other options that might help you avoid the negative impact of a loan settlement:
A. Loan restructuring
You can request loan restructuring from PNB, which may involve extending the loan tenure or lowering the interest rate to make EMIs more manageable. This allows you to continue making payments without defaulting.
B. EMI Deferment or Moratorium
Requesting an EMI moratorium or deferment can give you temporary relief from making monthly payments without being marked as a defaulter. This option is often available during periods of financial hardship.
C. Debt Consolidation
Consolidating multiple loans into a single loan with a lower interest rate can help reduce your overall financial burden. Debt consolidation also simplifies the repayment process, making it easier to manage your monthly payments.
D. Borrowing from Friends or Family
Consider borrowing money from trusted family members or friends to clear your PNB personal loan. This helps you avoid the negative impact of settlement and keeps your credit score intact.
Conclusion
Settling a personal loan with Punjab National Bank can provide short-term relief if you are facing severe financial distress. However, it is crucial to understand the long-term impact, particularly on your credit score. Loan settlement should be considered only after exploring alternatives such as restructuring or consolidation. If settlement is your only option, make sure to negotiate favorable terms and ensure you obtain a No Dues Certificate to close your loan account officially. By following the steps outlined in this guide, you can navigate the loan settlement process with Punjab National Bank efficiently and minimize its financial consequences.
Frequently Asked Questions (FAQ’s)
Ans: Typically, loan settlement is considered after the loan is classified as a non-performing asset (NPA), meaning it has been overdue for at least 90 days.
Ans: The settlement percentage usually ranges from 50% to 80% of the total outstanding loan, depending on your financial situation and the bank’s assessment.
Ans: Loan settlement negatively impacts your credit score, making it more challenging to obtain loans or credit cards in the future. Even if you qualify, the terms may not be favorable.
Ans: The “settled” status will remain on your credit report for up to 7 years, which may affect your creditworthiness during this period.
Ans: Yes. Loan foreclosure involves paying off the loan in full before the end of the loan term, while loan settlement involves paying only a portion of the loan, with the remaining amount being written off by the bank.
