Common Myths About Loan Settlement Debunked
Understanding Loan Settlement
Loan settlement is a process where borrowers negotiate with the bank to pay a reduced amount instead of the full outstanding balance. While it can provide financial relief, many misconceptions surround this option. Let’s clear up some common myths.
Myth 1: Loan Settlement Clears Your Debt Record
Fact: Loan settlement does not remove the loan from your credit history. Instead, the bank marks it as “settled” in your CIBIL report, which negatively impacts your credit score. This status remains for several years, making future loans harder to get.
Myth 2: Banks Always Agree to Settlement
Fact: Banks consider settlements on a case-by-case basis, mainly for borrowers facing genuine financial distress. They usually prefer full repayment and may reject settlement requests if they believe recovery is possible.
Myth 3: Settlement and Loan Waiver Are the Same
Fact: Settlement means paying a reduced amount, while a loan waiver cancels the entire outstanding debt. Waivers are usually granted by the government in specific cases, such as for farmers or small businesses in extreme distress.
Myth 4: You Can Easily Get a Loan After Settlement
Fact: Loan settlement lowers your credit score, reducing your chances of getting a loan in the future. Banks and financial institutions consider settled loans as a sign of financial instability.
Myth 5: Settlement Removes Legal Consequences
Fact: Settlement does not automatically cancel legal actions taken by the bank. If the bank has filed a case, you may need to complete additional legal formalities even after settling the loan.
Final Thoughts
Loan settlement can be an option for those struggling with repayments, but it comes with long-term consequences. Understanding the facts can help you make an informed decision. If you’re considering settlement, seek expert advice to explore the best financial solution.
