Taking out a personal loan can provide financial relief, but when you’re unable to meet the repayments, the situation can become stressful. If you’re struggling to repay an IDBI Bank personal loan, one option available is loan settlement. This allows borrowers to pay a portion of the outstanding loan amount to close the loan, relieving them from further liabilities. However, settling a loan can have lasting effects on your financial standing, particularly your credit score. In this blog, we’ll cover how to settle your IDBI Bank personal loan, the step-by-step process, consequences of settlement, and alternative options that might be a better fit.
What is Loan Settlement?
Loan settlement refers to an arrangement between the borrower and the bank in which the borrower pays a portion of the outstanding loan as a one-time settlement instead of repaying the full loan amount. The bank agrees to accept this lower amount and write off the rest. The loan is then marked as “settled” rather than “paid in full,” which can have a negative effect on the borrower’s credit report. For personal loans from IDBI Bank, loan settlement is usually an option only when the borrower is facing financial difficulties and is unable to make regular repayments.
When Should You Consider Loan Settlement?
While loan settlement can help you reduce your debt, it’s important to understand that it negatively affects your credit score. Here are a few scenarios when loan settlement might be a viable option:
- Job Loss or Income Reduction: If you’ve lost your job or experienced a significant reduction in income and can no longer afford the monthly loan payments.
- Health Issues or Medical Expenses: When an unforeseen medical crisis diverts your finances, leaving you unable to meet your loan obligations.
- Overwhelming Debt: If you’re burdened with multiple debts and loans, managing them has become financially unsustainable.
- Impending Bankruptcy: If you are considering declaring bankruptcy, loan settlement can help you avoid this extreme measure.
Before deciding on loan settlement, it’s always a good idea to explore alternative solutions that may allow you to pay off the loan without damaging your credit history.
How to Settle an IDBI Bank Personal Loan?
Setting up an IDBI Bank personal loan is a multi-step process that involves communication with the bank and a thorough review of your financial situation. Below are the steps you should follow:
A. Review Your Financial Situation
Before contacting the bank, assess your financial situation to understand your ability to repay. Review the total outstanding loan amount, your monthly income, and any assets that could be liquidated to help with the settlement. It’s crucial to determine how much of the outstanding amount you can realistically offer as a one-time settlement.
B. Contact IDBI Bank
Reach out to IDBI Bank’s loan recovery department by visiting a branch or contacting their customer service. Inform them about your financial difficulty and request a settlement option for your personal loan. IDBI Bank may ask you a few questions about your situation and assess your eligibility for loan settlement based on how long the loan has been overdue.
C. Submit necessary documents
The bank will likely request supporting documents to verify your financial distress. Some of the common documents you may need to provide include:
- Income statements or salary slips to show your current income or loss of income.
- Bank statements indicating your financial difficulties.
- Medical bills or other significant expenses that have impacted your ability to make loan payments.
- Termination letter or proof of unemployment, if applicable.
These documents will help IDBI Bank understand your financial situation and evaluate your case for loan settlement.
D. Negotiate the Settlement Amount
Once IDBI Bank has assessed your case, they will offer you a settlement amount. Typically, this is a percentage of the total outstanding loan amount. It may range from 50% to 80% of the remaining balance, depending on the circumstances. You should negotiate with the bank for a more favorable settlement if necessary. Be open about your financial difficulties to increase the likelihood of a lower settlement amount.
E. Make the Payment and Finalize the Settlement
Once you’ve agreed upon a settlement amount, the next step is to make the lump sum payment. After payment, the bank will issue a No Dues Certificate (NDC), confirming that the loan has been settled. Ensure you get this certificate, as it serves as proof that the loan has been settled and there are no further liabilities.
IDBI Bank’s Loan Settlement Policy
IDBI Bank follows a structured policy when it comes to loan settlement. Here are some of the key aspects of their settlement policy:
- Eligibility for Settlement: Typically, the loan must be categorized as a Non-Performing Asset (NPA) before the bank considers settlement. This happens when the borrower has defaulted for more than 90 days.
- Negotiation: The settlement amount will depend on the borrower’s financial situation and the amount already repaid. The bank may offer a percentage of the outstanding loan as the settlement amount.
- Approval Process: The final settlement amount must be approved by IDBI Bank’s higher authorities after a detailed review of the borrower’s case.
Impact of Loan Settlement on Your Credit Score
Although loan settlement can provide temporary financial relief, it will have a negative impact on your credit score and your credit report. Here’s how:
- Credit Score Decrease: When a loan is settled rather than fully repaid, it reflects poorly on your CIBIL score or any other credit score. This will cause your score to drop significantly.
- Credit Report Remark: The loan will be marked as “settled” in your credit report, indicating that the bank did not receive the full repayment. This remark can remain on your credit report for up to seven years.
- Future Borrowing Difficulties: A settled loan makes it more challenging to secure future loans or credit cards. If you are approved for a loan, it may come with higher interest rates due to the perceived risk.
Alternatives to Loan Settlement
Before opting for loan settlement, consider the following alternatives that may help you manage the loan without damaging your credit score:
A. Loan restructuring
Loan restructuring allows you to negotiate new terms with the bank, such as extending the loan tenure or reducing the monthly EMI payments. This can make repayments more manageable and help you avoid default.
B. Loan Moratorium
You can request IDBI Bank for a loan moratorium, which is a temporary suspension of EMI payments. This is especially useful during times of financial crisis and can prevent the loan from becoming an NPA.
C. Debt Consolidation
Credit consolidation involves taking out a single loan to pay off multiple existing debts. You may be able to get a loan with a lower interest rate, making repayments more manageable.
D. Borrow from family or friends
Instead of opting for settlement, consider borrowing funds from family or friends to pay off the loan. This can help preserve your credit score while still resolving the financial burden.
Conclusion
Settle Your IDBI Bank Personal Loan from IDBI Bank can help you manage financial hardship, but it’s not without consequences. The negative impact on your credit score and the “settled” remark on your credit report can make future borrowing more difficult. Before opting for loan settlement, explore alternative solutions like loan restructuring, moratoriums, or debt consolidation. If settlement is your only option, ensure that you negotiate effectively, understand the terms, and get everything in writing. This way, you can resolve the debt while minimizing long-term damage to your financial profile.
Frequently Asked Questions (FAQ’s)
Ans: No, typically loan settlement is considered when the loan becomes an NPA, which happens after 90 days of missed payments.
Ans: The settlement amount can range from 50% to 80% of the outstanding loan amount, depending on the borrower’s financial situation and the time period of default.
Ans: The loan settlement process can take anywhere from a few weeks to a few months, depending on how quickly you provide the necessary documents and finalize the negotiations.
Ans: Yes, but it may be more difficult to secure future loans. A settled loan negatively impacts your credit score, and lenders may charge higher interest rates or deny future loan applications.
Ans: You may need to provide income statements, bank statements, medical bills, and proof of unemployment, among other documents, to verify your financial hardship.
