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A settled account will cause more damage to an individual’s credit history than it can be actually imagined. If a customer avails of the settlement before the write-off, the flag in the credit report gets updated as settled, after the write-off gets updated as post write-off settled.
Meaning of One Time Settlement: If a borrower enters into a One Time Settlement, it simply conveys that the borrower has accepted that you he/she is incapable of paying the loan amount in full.
Precautions to take before a One Time Settlement
1. It is very important that a borrower asks the bank to provide you in writing about the status that they will report to CIBIL, after the settlement is done.
2. The borrower should also ask the bank to provide them with two settlement quotes. One is Blank Status and the other one is Other Than Blank Status.
3. The borrower can also ask the bank to extend your loan repayment period, waive the interest for a distinguishing time period, or provide a simpler repayment term. By doing this, the borrower will not have to settle the loan and thus can save the CIBIL score from reducing.
Drawbacks of Loan Settlements
1. It’s not the Best Option: Loan settlement is not the best option for a borrower. A borrower should make it a point that whenever a loan is taken, there is always a contingency plan or some emergency funds that will enable you to repay the loan.
2. Settling a loan unsettles your credit report: Whenever a loan is settled, only a part of the amount is due to the lender. This, in turn, unsettles the credit report.
3. Destroys Credit Taking Ability: Loan Settlement destroys the credit-taking ability irreparably for no less than 7 years. Even after that period, there is no guarantee that a lender will provide you with a loan easily.
Reasons Why One Time Settlement Ruins CIBIL Score
There are many reasons for a one-time settlement to ruin the CIBIL Score. Most of them are listed below.
1. Lack of Information: It usually happens that the individuals, who are burdened by the repayment of their loan, choose for One Time Settlement of their loans. These individuals are the ones who do not have the complete information about the damages that can be caused by One Time Settlement to their CIBIL Score.
2. An Alternate Option If Repayment is Difficult: If a borrower is finding it difficult to do the repayment of their debt, then the very first option that looks easy to select is the option of One Time Settlement. Rather than going for this option, a borrower should think of liquidating some part of their portfolio to repay their loan.
3. Keep Checking Your CIBIL Score: After the completion of an agreement with the lender, you need to keep checking your CIBIL Score and Report. After knowing your CIBIL Score, an individual can focus on the repaying other loans and maintain proper credit behaviour.
Important Points to Be Kept in Mind
1. If you pay the waived off amount, it will erase the “Settled” remark from your report, but this is not instantly going to improve your credit history.
2. If a borrower has defaulted on a loan and gets a call to ‘settle’ it for an amount that is less than the amount outstanding on the books of the bank, then it is advisable not to accept the offer blindly. This settlement will unsettle the credit history of the individual and will also impact the ability of an individual to get new loans in future.
3. A Loan Settlement does not clear the record of late payments from a credit report; instead, it prevents the individuals from receiving any more late payments on the loans that belong to the individual currently
4. If a loan is settled earlier, there are earlier chances of rebuilding the credit score and the earlier you will be able to take up other financial products like loans that have lower interest rates.
5. If a borrower has a settled status that has been marked by CIBIL, it indicates that the borrower might have certainly failed to meet the debt obligations in past and also that the debts might not have paid in full.
Creditseva offers DIY tools and apps that help in settling loans in a proper way and also get guidelines for getting eligible for new loans in future. By availing the services of Creditseva, all your credit related problems can be solved at one go and with complete convenience.
A borrower’s settled status marked by CIBIL indicates that the borrower would have surely failed to meet the debt obligations in past and also that the debts might not have paid in full. All the lenders consider this as a negative sign and are reluctant to provide loans to such individuals. Therefore, if you have a plan to apply for any loan or credit card in future, then you should avoid settling your account.
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