If you want to do loan settlement to get free from the debt trap, then know these important things, otherwise you will face problems.
Business News Desk – After taking a loan from the bank, when a person becomes completely unable to repay it, he resorts to loan settlement. In banking language it is called One Time Settlement (OTS). OTS is an agreement between the bank and the borrower in which the loan is settled at a fixed amount at one time. If you are also thinking of settling the loan then first understand a few things, it will benefit you only.
Propose loan settlement in this way
You need to prepare an explanation as to why the bank should allow you to settle the loan. In such a situation, you should have some solid reason for loan settlement, so that the bank can be assured. After this, go to the bank and tell them that you are not able to repay the loan and that you are ready to settle it. After this propose loan settlement.
Offer a lower amount for settlement
The creditor always wants to take as much money as possible from you during settlement, so you should offer a very low amount for settlement. You can start by negotiating 30% of your outstanding amount. However, the bank may refuse you this. The bank can give you up to 80 percent of the loan settlement amount, but you will have to try to bring the bank’s settlement amount to 50 percent by explaining your problems. If the matter is resolved, finalize the loan at 50 percent. This will give you a lot of relief.
Make this request to the bank
During the negotiation, request the creditor to send you a written agreement that your payment will extinguish any legal liability you have for the loan.
Keep in mind that loan settlement does not close the loan.
Loan settlement does not close the loan, a settled loan is a middle ground agreed upon by both the borrower and the bank. At the time of loan settlement, the defaulter has to repay the entire outstanding principal amount, but the interest amount as well as penalties and other charges may be waived partially or completely. But upon settlement, the bank does not get the entire amount, which the borrower has to repay in the middle of his loan tenure. Therefore, banks write down the settlement on the credit history of the borrower. This shows that the borrower did not have money to repay the loan.
Disadvantages of loan settlement
In case of loan settlement, it is considered that the borrower did not have money to repay the loan. In such a situation the credit score of the borrower reduces. It could be 50 to 100 points or even more. If the borrower settles more than one credit account, the credit score can go down further. For the next seven years, in the account status section of the credit report, it may be written that the borrower’s loan has been settled. In such a situation, it becomes almost impossible to take a loan again for the next seven years. The bank can also blacklist you. Therefore, whenever you become financially capable, try to convert the settled account into a closed account.
