Loan Settlement Can Destroy Your Credit Score This Is How You Can Rebuild Your Credit History

Loan Settlement: In today’s time, loans are easily available for home, car, electronic items etc. Giving loans is also the biggest means of business for banks and NBFCs. Only the interest received on the loan takes them towards profit. However, many people are unable to repay the loan due to various reasons and consider settling it and paying less amount as a good option. But, before doing this you should think at least 100 times because it can become a big problem for you in future. You may not only be blacklisted but will also be deprived of a loan if needed.

What is loan settlement?

If for some reason you are unable to make the EMI or full payment of the loan, the bank makes a settlement with you. For this you will have to give proper reason. After this, if the bank wishes, it can start the settlement process with you. In this, the customer and the bank decide the amount of the agreement. After giving this, your loan will be closed and your problem comes to an end. But, the real problem starts from here because there is no settlement loan closure.

credit history gets spoiled

Loan settlement is a type of agreement. In this the bank has given up hope of getting the amount back. Therefore, he takes his principal amount and settles with you. The bank does not get any other charges including interest, penalty. He adds this settlement to your credit history. This lets every bank and NBFC know that you did not pay the full amount. Your credit history gets spoiled. When you apply for any loan next time, they get to know about it.

Certificate of loan closure is received

If you pay all the EMIs, you get a closure certificate at the end of the loan. This improves your credit score. When such people apply for another loan, they get the loan easily and at lower interest rates. But, this certificate is not available after settlement. Due to this, any next loan faces problems for seven years. Credit score drops by 50 to 100 points. Many times you are even blacklisted.

What are the ways after settlement?

If you have made the settlement and now want to improve your credit history, you can go to the bank and pay the waived fees, interest and penalty. After this you will not have any outstanding dues to the bank or NBFC. You will get closure certificate. Besides, credit score will also improve.

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