Loan settlement lies or truth? How to find out

Summary

In today’s time when taking a loan has become a common thing, then being unable to repay the loan is also becoming a common situation. In such a situation, many times the option of “Loan Settlement” comes up. As easy as this option looks, in reality it is a step that needs to be taken very thoughtfully.

First of all, it is important to understand that Loan Settlement does not mean that your loan is completely forgiven. Rather, it is a kind of agreement in which the bank takes a certain amount from you and declares your account as “Settled”. However, this process can harm your CIBIL score. Due to this, you may face problems in getting a new loan or credit card in the future.

Apart from this, many times, some fake agents claim to get the settlement done without the permission of the bank. They make false promises of closing the loan for less money, which can prove to be a big fraud. Therefore, before falling into its trap, you must contact the bank yourself and check all the documents thoroughly.

Thus, if you really have no other option and you have received an official settlement offer from the bank, then only you should go for this process. Otherwise, it can become a financial trap for you.

Introduction

Taking a loan has become a very common thing in today’s era. Banks and financial institutions easily give loans for every need, be it for studies, buying a house, buying a car or starting a business. But many times due to deteriorating financial condition, people are not able to pay the loan EMI on time and the loan comes into a state of default. In such a situation, one word is heard a lot – “Loan Settlement”.

But now the question arises whether Loan Settlement is a solution or another trap? Does it end your problems or put you in bigger trouble? Often, some agents or consultancies attract a person troubled by a loan by saying that they will settle your loan, due to which you will have to pay less money, and you will be free from the loan. It sounds very good, but is it true? Is it a legal and safe method? Or is there a big lie hidden behind it?

Actually, Loan Settlement is such a process, which is very important to understand correctly. In this, there is an agreement between the bank and the customer, in which the bank takes a lump sum amount and “settles” the loan. But, it is important to know the truth behind it. Because after taking this step, your CIBIL report is seriously affected and it may be difficult to get a loan or a credit card in the future.

In today’s article, we will understand in detail what is Loan Settlement, what are its advantages and disadvantages, when should it be done and when not. Along with this, we will also give you such tips so that you can know whether the other person is speaking the truth or lying.

What is Loan Settlement?

It is a financial process in which the bank or financial institution allows the loan taker to settle the loan by paying a lesser amount instead of the entire outstanding loan amount. This facility is for those who are unable to repay their loans on time and are continuously defaulting.

Under a settlement, the bank can agree on a lump sum amount, which closes the loan. However, it is important to note that settling the loan can affect your CIBIL score, making it difficult for you to get 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.

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.

How does a Loan Settlement affect your credit score?

The impact can be seen in the following ways:

• After a Loan Settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors feel that you may be a high-risk customer.

• If your credit score drops, it may be difficult for you to get a loan, credit card, 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 for a Loan Settlement with your bank, you are not paying off the entire loan, but paying a certain amount that is less than the principal amount. This is seen 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.

• After the Loan Settlement process, your credit report will be updated with the information that you have “settled” your loan. 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 Loan Settlement means that you have not repaid the entire loan, when you try to get a new loan in the future, banks may look at your credit score and report and reject your application, or give you a loan at higher interest rates.

How to choose the service of Loan Settlement?

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.

Understand the settlement process.

Carefully understand the settlement process offered by the service provider. Do they understand your entire situation and provide you with a better solution to negotiate with the bank? A good provider will give you complete information about the paperwork and the process so that you understand the entire process properly.

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 are the advantages and disadvantages of Loan Settlements?

It has the following advantages and disadvantages:

Advantages

• 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.

• 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.

Disadvantages

• 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.

• 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.

Loan settlement lies or truth? How to find out

In today’s time when it has become easy to take a loan, the situation of not being able to repay the loan has also become common. In such a situation, many times the bank or agent suggests “Loan Settlement”. On hearing this word, people feel that this is an easy way – a way to get rid of the loan by paying less money. But is Loan Settlement a true solution or just a trap? Let’s understand in detail.

Loan Settlement – Identifying the truth

The truth is when:

• The bank itself offers you a settlement in writing.

• You have sufficient documents, such as – Settlement Letter, Payment Receipt, etc.

• The bank proves that this case will be reported to CIBIL as ‘settled’.

The lie is when:

• An agent promises settlement without the authority of the bank.

• You are asked for processing fees or money in advance.

• No one says that your CIBIL score will not be affected after the settlement.

Ways to avoid fraud:

• Always talk to the bank directly – go directly to the bank branch instead of the agent.

• Make sure to take the settlement letter – do not make any payment without written proof.
• Check your CIBIL report – After the settlement, ‘Settled’ will be written in your report, which may make it difficult to get a loan in the future.

• Do not make a payment without documents – do not make any payment based only on a call or message.

What is the legal process of loan settlement?

However, it is a legal process, and it is necessary to follow certain rules to do it.

1. Bank’s action in case of default

If you are unable to pay the loan EMI for 3 to 6 months continuously, the bank can declare it as NPA (Non-Performing Asset). After this, the bank can start the recovery process against you. Under the SARFAESI Act, 2002, the bank gets the right to seize your mortgaged property (collateral) and recover the outstanding amount by auctioning it.

2. Request a loan settlement from the bank

If you are financially weak and are unable to repay the entire outstanding amount, then you can request a One Time Settlement (OTS) or Negotiated Settlement.

3. A Settlement Offer is given by the bank

After examining your situation, the bank gives a Settlement Offer, which decides the total amount you have to pay.

4. Sign the Settlement Agreement

If you accept the offer given by the bank, you will have to sign a written agreement. It will be mentioned in it that after the settlement, the bank will not take any further legal action against you.

5. Pay the Settlement Amount

After signing the agreement, you have to pay the Settlement Amount within the stipulated time frame. The payment is usually made in a lump sum.

6. Get a No Dues Certificate (NOC)

Once you pay the settlement amount, the bank has to issue you a No Dues Certificate (NOC) to certify that your loan is now fully settled.

What are the things to keep in mind while settling a loan?

• Negotiate with the bank and find a fair solution.

• Get the loan settlement process in writing so that you do not face any problems in the future.

• Do not forget to update the CIBIL report after the settlement.

• Take the help of a financial advisor or lawyer if needed.

Conclusion

When we talk about “Loan Settlement”, the term sounds easy, but it is very difficult. Many times, people think that this is an easy way to get rid of their loan by paying less money. However, the truth is that this path should be adopted only when you have no other option left.

First of all, we must understand that Loan Settlement is not a magical solution but a compromise that should be done only in an emergency. It is not a permanent solution, but a step that can affect your financial creditworthiness (CIBIL score). Therefore, if you are thinking about settlement, you must understand its long-term effects well.

Secondly, many people fall into the trap of some agents or fake companies without talking to the bank. They think that a third person will get the settlement done for them, and their loan will be over. But the reality is that most of such cases turn out to be fraud. Therefore, always be cautious and do any settlement process only through a bank or a certified institution.

Frequently Asked Questions (FAQ’s)