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How the one time settlement of loan affect the CIBIL score. -

How the one time settlement of loan affect the CIBIL score.

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How the one time settlement of loan affect the CIBIL score.

While somebody taking a loan, he may have planned out for repayment for a certain period. But due to some unforeseen situations he fails to pay equated monthly installments (EMI) for few months. This will negatively impact his credit score and will hinder his from taking loans in future.

If the borrower has genuine issues and is finding it hard to meet the repayment, the bank offers the borrower One Time Settlement of the loan.

The bank then reports a loss to CIBIL. While it may seem a sign of relief to the borrower, as then he won’t be in the list of the recovery agents, but he is not aware of the fact that he pays a heavy price for the same.

The credit bureau CIBIL will mention the same as “settlement” in your CIBIL credit report against that particular loan in the account information section. In the account section there is a sub-section called Days Past Dues (DPD). This section has the repayment record of the borrower for the past 36 months on a month-by-month basis. In the DPD section an “o” means no dues; anything other than that is considered as a negative for the borrower. The loan account information in your credit report will not show any amount overdue but it will reflect account status as settled.

Any loan that is due by more than 90 days is classified as a non-performing asset by the bank and 180-270 days after the payment date, the bank writes-off the loan. However the settlement can happen before or after the write off. If the settlement had happened before the write-off, the credit report will be updated as “settled”. But if the settlement happens 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 a negative by the banks and financial institutions. They will be reluctant to give you loan in future. If you approach a bank for a loan, it is highly likely that the loan will get rejected.

If you have settled a loan with your banker, you should take a no-dues certificate from your lender. This will ensure that interest doesn’t accrue on the outstanding amount that was not paid for settlement.

However, it is always advisable that you pay your equated monthly installments on time to avoid getting into such situations as your perspective lender will always see your repayment track record and what was the amount settled including your credit score before taking any decision on your loan application.



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