How to Use a Loan Calculator Before Choosing a Settlement Plan?

Summary

Often, when people are in financial trouble, they hastily opt for a settlement plan. But if you take the help of a loan calculator before making this decision, you can understand your current situation better.

First of all, with the help of a loan calculator, you can know how much loan you have repaid so far, how much interest and principal are left, and how much you will have to pay after the settlement. Apart from this, you can also know what our monthly installment will be if there is a change in EMI and how much difference there will be in the total payment.

After this, when the bank gives you a settlement offer, you can compare that offer with your current situation. For example, if the bank is giving you a settlement of 80% of the outstanding amount, then the calculator will make it easier to understand whether this deal is beneficial for you or not.

Introduction

Whenever we take a loan from a bank or financial institution, initially, it seems very easy to us. But with time, when it becomes difficult to repay the loan EMI on time, we start thinking about the “Settlement Plan”. The Settlement Plan is an option that gives us a chance to repay the remaining loan amount with a discount. But the thing to note is that before adopting the Settlement Plan, it is very important to make a proper plan, so that you do not have to face any kind of financial problem in the future.

That is why using a Loan Calculator can prove to be very useful at such a time. It is an online tool that helps you understand your loan status at present and whether the Settlement Plan will be beneficial for you or not. Through this, you can understand your EMI, interest rate, total payment amount, and the remaining outstanding amount correctly.

Now you must be thinking – what is the relation of using a Loan Calculator with the Settlement Plan? So the answer is – Loan Calculator is an easy way to estimate the status of your loan. This lets you know how much you will have to pay if you adopt a Settlement Plan and whether it will be appropriate according to your current income and expenses or not.

Today, in this article, we will learn in detail how to use a Loan Calculator before choosing a Settlement Plan, what things should be kept in mind, and how it can improve your financial planning.

What is Loan Settlement?

It is a financial process in which a bank or financial institution allows the loan taker to settle the loan by paying a lesser amount than the entire outstanding loan amount. This facility is for individuals who are unable to repay their loans on time and have a history of continuous default.

Under a settlement, the bank can agree on a lump sum amount, which closes the loan. However, it is essential to note that settling the loan can negatively impact your CIBIL score, potentially making it more challenging for you to obtain a loan in the future. Therefore, it should be adopted only as a last option.

How does a Loan Settlement work?

When a person is unable to pay the EMI of his loan on time and the outstanding amount accumulates over a long period, the bank or financial institution offers the option of loan settlement. In this, the bank allows the customer to pay a discounted amount instead of the entire outstanding amount, thereby settling the loan matter.

The process of settlement comprises discussions between the bank and the customer, wherein the bank assures that the customer can’t pay the entire loan amount. Thereafter, the bank issues a single-payment offer, which is typically lower than the outstanding loan balance. On the payment of this settled amount by the customer, the bank marks the loan as “Settled”. Yet, this is not good for the CIBIL score since it is not treated as a “Complete Payment”.

Hence, loan settlement should be opted for as a matter of last resort, and if at all possible, loan repayment schemes, loan restructuring, or alternative financial solutions must be opted for so that the credit rating is not impacted.

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.

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 problems 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 is the difference between a Loan Settlement and a Credit Card Loan Settlement?

Although both Loan Settlement and Credit Card Loan Settlement aim to provide relief to the borrower, there are some important differences between them.

Points of Difference	Loan Settlement	Credit Card Loan Settlement
Type	Settlement of any type of loan (personal, home, car, education, etc.)	Settlement of Credit Card dues only
Settlement Process	The bank fixes a lump sum amount, on payment of which the loan gets settled.	The credit card company settles the amount at a fixed rate.
Impact on CIBIL score	CIBIL score may drop by 50-100 points, and it may become difficult to get a loan in the future	There is a huge impact on the CIBIL score, and it may be difficult to get a new credit card.
Possibility of getting a loan in the future	You may face problems in getting a home loan, a car loan, or any other loan.	Credit card companies may refuse to issue the card.

How much impact does a Loan Settlement have on your CIBIL score?

Loan Settlement has a direct and negative impact on your CIBIL score. When a person takes a loan from a bank or NBFC and is unable to repay the entire amount due to some reason, the bank gives him a chance to make a settlement, which is called a Loan Settlement.

However, there is a huge difference between a Loan Settlement and a Loan Closure. If you close your loan by repaying its full amount, it is recorded as “Closed” in your credit report, which improves your CIBIL score. But if you have some amount of the loan waived off under an agreement with the bank, it is reported as “Settled”, which can harm your credit score.

What are the effects of a Loan Settlement on your CIBIL score?

• When a bank or NBFC reports to CIBIL that your loan is “settled”, your score drops immediately. The amount of drop depends on how good your score was earlier.

• Banks and financial institutions put customers who have settled their loans in the “high-risk” category. This means that in the future, if you try to take any type of loan (personal, home, car, or education), your application may be rejected.

• If you have settled a loan, it may be difficult to get a credit card from any bank in the future. Banks look at your credit history, and if they see a “settled” status, they may refuse to give you a credit card.

• Even if a bank decides to give you a loan, you may get the loan at a very high interest rate. This is because banks consider you a risky customer and charge a higher interest rate to protect their money.

• Loan settlement information remains in your CIBIL report for at least 7 years. This means that even if you improve your financial behavior later, your settlement record will continue to be visible to banks and may affect your creditworthiness.

What are the ways to improve your CIBIL score after a loan settlement?

If you have settled the loan and now want to improve your CIBIL score, then you can take the steps given below:

• Pay all loan and credit card bills in full on time.

• If possible, try to change the “Settled” status to “Closed” by contacting the bank.

• Use credit cards limitedly and make full payments on time.

• Take a small loan and repay it regularly to build a new good credit history.

• Check the CIBIL report regularly and request that CIBIL rectify any mistakes.

How do you choose the loan settlement service?

Here are some important points to consider that will help you choose the right Loan Settlement service:

Check the service provider’s credentials.

Before hiring a settlement service, make sure that the service provider you are hiring is registered and certified with financial institutions and banks. Only a reliable service provider can provide you with the right guidance and support. Checking online reviews and customer feedback is a good way to do so.

Check the service charges and other expenses.

Many service providers also charge a service fee, but make sure that the charges are not high and there are no hidden costs. Negotiate with the service provider beforehand about which services are free and which you will have to pay extra for.

Customer support and communication

A good service provider will always stay in touch with the customer and resolve their problems properly. Make sure they answer your questions quickly and are ready to work with you in any difficult situation.

Join our service

If you are also trapped in the debt trap and are facing a financial crisis, and want to adopt the path of Loan Settlement, then you can apply for our Loan Settlement service. We will help you settle your loan. Along with this, we provide you relief from the burden of the loan within 6 – 8 months. If you want to get more information about our service, then you can contact us.

How long does it take for a Loan Settlement to be processed?

The time taken for the settlement process also depends on various factors, such as the policies of your bank or lender, the outstanding amount, and the communication between the two of you. Usually, this process can take from 1 to 3 months.

The first action in the process of settlement is to approach the bank, where you tell your problem and payment status to the bank. Then, the bank proposes a settlement offer according to your situation. In case you agree with that proposal, you need to pay the amount to the bank within the agreed time. The bank indicates the loan as settled, and this would take some time.

The longer this entire process continues, the more it can impact your CIBIL score, so it is preferable to resolve the issue sooner.

What is the difference between Loan Settlement and Bankruptcy?

Let us understand the difference between them in simple language:

1. Definition

• Loan Settlement: It is a mutual agreement between a bank and a borrower. In this, the bank accepts that the borrower cannot repay the entire loan, so it takes a fixed amount and forgives the remaining amount.

• Bankruptcy: It is a legal process. When a person or organization is unable to repay its total liabilities, it applies for bankruptcy in the court, and the court decides how its assets will be distributed.

2. Process

• Loan Settlement: It is an illegal process that takes place directly between the bank and the customer. No court is involved in this.

• Bankruptcy: It is a judicial process in which the court and insolvency professionals are involved.

3. Debt Relief

• Loan Settlement: After paying some part of the loan, the rest of the loan can be waived off, but the CIBIL report has a tag of “Settled”.

• Bankruptcy: The court decides which loans will be waived off and which will not. This can get rid of the debt completely, but the property can be confiscated.

4. Effect on CIBIL score

• Loan Settlement: CIBIL score has a serious negative impact. The tag of “Settled” can become an obstacle in getting a loan in the future.

• Bankruptcy: CIBIL score falls completely, and it has a long-term impact.

5. Cost & Time

• Loan Settlement: This process is completed quickly, and there are no legal expenses.

• Bankruptcy: This can be a long and expensive process, which requires lawyers and professionals.

What are the advantages and disadvantages of Loan Settlements?

It has the following advantages and disadvantages:

Advantages 

• 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 their 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

• In the future, the borrower may have difficulty 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 their 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.

How to settle a loan declared as NPA?

Below, we will know in detail how this can be done.

1. First, contact the bank

• When the loan is declared as NPA, the borrower should first contact their bank or financial institution directly.

• Instead of getting scared, talk.

• Tell the bank about your financial situation.

• Tell them that you want to repay the loan but cannot make the full payment in the current situation.

2. Ask for an OTS (One-Time Settlement) proposal

• Banks often bring the OTS scheme for NPA accounts, in which

• Some amount is waived,

• The remaining amount has to be paid in a lump sum or installments.

3. Take the settlement deal in writing (Settlement Letter/NOC)

• If the bank accepts your settlement proposal, then:

• Take a written settlement letter from them.

• After completing the payment, do not forget to take the NOC (No Objection Certificate).

• This will serve as proof for you in the future.

4. Understand the impact on CIBIL score

• The settlement of an NPA loan affects your CIBIL score.

• Your score may fall for some time.

• But by paying other bills/credit cards/EMIs on time, you can improve the score again.

5. Avoid default again in the future

• Do financial planning.

• Take a loan only as per your need.

• Pay installments on time.

• Spend according to your budget.

How to Use a Loan Calculator Before Choosing a Settlement Plan?

Let us understand in simple language how to use a Loan Calculator before choosing a Settlement Plan:

1. What is a Loan Calculator?

A Loan Calculator is a digital tool that helps you estimate your loan EMI, total payment amount, interest amount, and tenure. It is available online and is very easy to use. Some of the major Loan Calculator types are:

• EMI Calculator
• Interest Calculator
• Prepayment Calculator
• Settlement Estimator

2. Why is a Loan Calculator necessary before a Settlement Plan?

Before adopting a Settlement Plan, it is important to know:

• How much do you owe?
• How much interest and principal have you paid so far?
• How much will you have to pay after the settlement?
• What will be the change in the loan tenure and EMI?
• The Loan Calculator gives easy and accurate answers to all these questions.

3. How to use a Loan Calculator?

Step 1: Enter loan details

Enter the following details in the calculator:

Total loan amount

Interest rate

Tenure of loan

Number of EMIs paid so far

Step 2: Enter details of the Settlement Offer

If the bank has given a settlement offer, such as:

• New settlement amount
• Percentage of discount
• Payment deadline
• Enter these details in the calculator.

Step 3: Compare

Now the calculator will tell you:

• How much benefit will there be in the settlement offer?
• How much is being waived off
• What will be the impact on your EMI and tenure after the settlement?

Conclusion

Finally, it would be fair to say that whenever you consider adopting a settlement plan, do not forget to use a loan calculator before that. This small step can benefit you greatly in the future. First of all, it shows you the complete picture of your loan – how much you have paid, how much is outstanding, and what you should do next.

Along with this, it is also important to understand that adopting a settlement plan can have an impact on your CIBIL score. But if you have checked all the possibilities beforehand with the help of a loan calculator, then you will be able to make decisions that will strengthen your financial position, not weaken it.

In this way, the use of a loan calculator does not limit you to just doing calculations, but it becomes a means of making informed decisions. And when you make your decisions based on data and research, there are fewer mistakes and more benefits.

Frequently Asked Questions (FAQ’s)