People sometimes take loans when they are in trouble or when some important work comes up. There are also many people who take loans to start a new business or to expand their business. However, later due to circumstances like loss of job, loss in business or illness, difficulties arise in repaying loan installments. In case of default of installments, the interest and penalty on the borrower increases. In such a situation, people choose the option of settling the loan. This gives relief for the time being, but later its bad consequences come to the fore. Loan defaulters ranging from Rs lakh to Rs 1 crore have been instructed to do one time settlement with mutual consent, so that small stuck loans can be settled. In the past also, in many cases, banks have been giving the option to the borrower to settle the loan on their behalf. At the same time, in many cases, the borrowers themselves approach the bank for this and demand relief through settlement. In both cases, ultimately the borrower has to bear the loss.
Banks give offers in these cases
Actually when a person repays the loan for more than 90 days i.e. above 3 months If he does not pay the installments (EMI), then the bank or financial institution asks him the reason for not paying the EMI. Banks or finance companies closely examine the claim of the person. If they feel that he really does not have the capacity to repay the loan, then loan settlement is offered…
This is how settlement happens
Banks in one time loan settlement Efforts are made to settle the account by depositing at least the principal amount in a single payment. In such a situation, banks waive interest, penalty or legal expenses. The settlement amount is decided after considering the repaying capacity of the borrower and the circumstances. After paying the settlement amount, the bank closes the loan by writing off the difference between the total outstanding amount and the settlement amount.
Credit score will deteriorate
It gives immediate relief, but in the long run its bad results come to the fore. Actually, on closing the loan in this way, the status of the loan account shows ‘Settled’ instead of ‘Closed’. The status of a loan account is shown as ‘closed’ when the loan is closed by paying the loan on time. This information from financial institutions goes to the credit rating agencies. Settle account is not a normally closed account, hence it is considered as negative. In such a situation, the credit score is badly affected and you may have to face a lot of difficulties in getting a loan or credit card for the next several years.
Try these options first
One Time loan settlement should be the last resort. Apart from this, there are also some ways, with the help of which you can come out of the debt trap. If you have any savings or investment, use it to repay the entire loan. Try to clear the bank dues by taking an interest-free loan from relatives or friends. Talk to the lender ie bank for loan restructuring so that you can easily return the entire money. Ask the bank for some more time to repay the loan instead of one-time settlement.
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