Loan Settlement: Loan takers should know its major disadvantages before settling the loan...

Many times we take a loan, but due to some reasons, we are not able to repay it on time. If you do not pay your loan for 91 consecutive days, then the bank puts it in the category of Non-Performing Asset (NPA).

After your request, the bank offers you a one-time settlement. It is called OTS. In OTS, the defaulter has to pay his outstanding principal amount in full, but the interest amount as well as penalty and other charges can be waived off partially or completely. In some cases, some relief is also available in the principal amount. But should you choose this option? Know about it here.

Loan settlement does not mean loan closure-
Financial affairs advisor Shikha Chaturvedi says that by settling the loan, you get rid of the recovery agencies and the borrower can clear the dues by accepting the terms agreed with him and the bank. But never make the mistake of considering loan settlement as loan closure. Loan closure occurs when the loan borrower repays all the EMIs.

This loss occurs due to loan settlement-
In the case of loan settlement, it is considered that the borrower did not have the money to repay the loan. In such a situation, the credit score of the borrower is reduced. It may be 50 to 100 points or less. If the borrower settles more than one credit account, the credit score can drop even further. In the account status section of the credit report, it may remain mentioned for the next seven years 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. You can also be blacklisted by the bank.

What should be done-
Shikha says that if you have no option other than loan settlement, then you can definitely choose it, but there is also an option to convert the settled account into a closed account. When you become financially capable, you go to the bank and say that you want to return whatever exemption you got in dues i.e. principal, interest, penalty, and other charges. After making this payment, you get a certificate of no-due payment from the bank. Do take it. After this, the bank informs the credit bureau that your account has been closed. With this, your deteriorated credit score also improves.

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