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Life is unpredictable and sometimes, it brings you on the path which was not planned by anyone. You have taken a loan with a certain plan for repayment, but with the changed situation, you find it difficult to meet your repayment commitment. This will definitely impact your credit score negatively and may restrict you from taking loans in future.
But if you approach the bank and inform them about your inability, they might offer you a choice of one-time settlement. The lender or the bank will offer you this option after 6 months of non-payment of dues, only if they find that payment was delayed due to some genuine reasons such as accident, job loss or any serious medical condition. The bank authorities sit down with the borrower and access the genuineness of his situation and the amount due to them. Although you may find it a beneficial option, this settlement can cost you your CIBIL score. Yes, your CIBIL score is affected by this settlement and this settlement is viewed as negative credit behaviour.
If you have settled a loan with your banker or lender, then you should ask for a no-dues certificate from your lender. This will ensure that they are not imposing any interest on the outstanding amount that was not paid for settlement.
This is why a one-time settlement may sound like a relief for those who are not willing to pay loans, but the cost they are paying for their unwillingness is way more than anything. Your credit score helps the lender decide if you are qualified enough for a loan or credit card. As per CIBIL, your credit score ranges from 300 to 900 and those with a score of at least 750 are preferred by lenders. Higher credit scores suggest a lower risk of default and if your credit score is affected due to your non-payment of previous loans, then lenders have full right to reject your loan application.
A loan that is due by more than 90 days is classified as a non-performing asset by the bank or lender and after 180-270 days of the payment due date, the bank will write-off the loan. However, the settlement can happen before or after the write off period. If the settlement had happened before the write-off, the credit report will be updated as “settled”. But if the settlement is made after the write-off, the credit report will be updated as “post-write-off settled”. Under both the conditions, it will impact your credit score and will be considered as a negative aspect by the banks and lenders. They will be reluctant to give you a loan in future. If you approach a bank for a loan, it is highly likely that the loan will get rejected.
The next big thing one can do to avoid settlement is to have a contingency plan while taking a loan. Even if the bank does not require any collateral, you must still always have a backup plan for critical situations. You can even take insurance on your loan amount and the insurance company will carry all your formalities of paying your dues till you are capable to do so.
These options will not stop your payments and hence, your credit score will not get affected. Not only will this help you avoid taking the lender’s option of the one-time settlement, but also help you from CIBIL mentioning this in your Credit report.
The above options will not only help you avoid any negative marking in credit report, but will also help you stay away from all the complicated formalities of banks that are done to find the genuineness of situation. So, choose other possible ways and try to make arrangement on your own as much as possible instead of going for the settlement option to avoid any regrets in future.
Repaying loan is a big responsibility. It is believed that taking a loan is easy, but repaying it is tough. It will not only cost you your money, but peace of mind. Thus, a few things must be remembered before applying for a loan. Always borrow within your limits and as per your requirements. Always make sure that you have an alternate means to repay the loan. The only reason why banks and lenders offer you the option of one-time settlement is because they are aware that you will not be able to return the money and they will settle for whatever you can pay. They will at least get some money from you. Make sure that you never misuse your credit capability. Lastly, remember that the settled status stays in your credit report for the next 7 years, making it impossible for you to get a loan for such period and reducing your credit score by up to 100 points.
One time settlement has a direct impact on your CIBIL score. The CIBIL score of a person is one of the most important things that show your credit status and a red mark on this report card can restrict you from taking a loan for the next seven years. So, think twice before choosing this option of one-time settlement and do good research about every aspect of this settlement.