When you apply for a loan, it's important to be aware of your loan repayment capacity. In case you are unable to repay your loan due to unavoidable circumstances, then one of the options available is loan settlement.
However, this is not a recommended option due to various reasons, one of which includes the adverse impact on your credit score.
Personal loan settlement process, also known as personal loan defaulter settlement refers to an agreement between a lender and a borrower wherein the loan is ‘settled’ by repaying only a part of the loan.
Based on the number of EMIs that have been unpaid, a lender may agree to waive the processing fee or penalty for delayed payment or in extreme cases, a part of the principal amount. As mentioned previously, this will depend on the borrower’s reason for defaulting as well as the amount that is yet to be repaid.
Once the loan settlement process is completed, the lender will close the loan and mark it as ‘settled’.
No! Not unless there is absolutely no other option. At first glance, loan settlement may look like an easy way out of not repaying the loan, but the consequences are detrimental. This is the case for all loans, including personal loans.
Instead of opting for a personal loan settlement process (or any other loan), try to go for some of the options given below-
Please bear in mind that going for a loan settlement process should be considered only when you have exhausted all other options.
When you opt for a personal loan defaulter settlement, it negates the original credit agreement between you and your lender. Also, when your lender reports the same to credit rating agencies as ‘ settled’ instead of ‘paid as agreed’ or ‘paid in full’- it will have a negative impact on your credit score, and discourage other lenders from lending you credit in the future.
Did you know that settling a loan may hurt your credit?
While the loan might have been ‘closed’, your name may be on the list of loan defaulters. Besides, your lender will report the same as ‘settled’ to the credit bureaus which has a detrimental impact on your credit score.
You will be considered as a risky borrower which will prevent lenders from providing loans to you easily.
The very act of opting for loan settlement has a negative impact on his/her credit score. A ‘settled’ loan is considered as negative behavior by credit rating agencies as the borrower has failed to repay the entire loan amount which brings down his/her creditworthiness.
Borrowing for such individuals will be very hard in the future and even if they do avail a loan, it will be at very high interest rates or other unfavourable conditions. For a borrower, it takes nearly seven years or so to reestablish a positive score and improve his/her credit history.
Loan Amount
Min ₹10
Max ₹10,000,000
Rate of Interest
Min 5%
Max 25%
Loan Tenure
5
months
Min 3 months
Max 72 months
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Disclaimer
The starting interest rate depends on factors such as credit history, financial obligations, specific lender's criteria and Terms and conditions. Moneyview is a digital lending platform; all loans are evaluated and disbursed by our lending partners, who are registered as Non-Banking Financial Companies or Banks with the Reserve Bank of India.
This article is for informational purposes only and does not constitute financial or legal advice. Always consult with your financial advisor for specific guidance.
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