What is personal loan settlement process?

Personal loan settlement is a process where a borrower negotiates with the lender to pay back a reduced amount of the loan balance to close the debt. Personal loan settlement is typically pursued when a borrower is facing financial difficulties and is unable to make full loan payments.

However, life is unpredictable and full of challenges that can occur at any period of time. In such a situation, borrowers find it difficult to repay the loan as initially agreed upon. Personal loans are designed to deal with financial-related problems.

Loan settlement is an essential procedure that debtors must need to go through while closing their debt. It is crucial to understand that opting for a personal loan settlement can have both positive and negative impacts.

What is a personal loan?

A personal loan is basically an unsecured loan taken by an individual in such a situation where they borrow money from the bank or creditors for fulfilling various personal reasons such as medication, meeting financial needs, consolidating debt, covering unexpected expenses, children’s future education, or vacations.

However, one thing that a borrower must always keep in mind before taking a personal loan is the capacity to repay the loan with interest. A borrower may face challenges while repaying the interest to the creditor. For such situations, personal loan settlements become more crucial.

A personal loan consists of 3 elements – evidence of the debt, the amount that has been borrowed, and the cost of the borrowing which is the interest rate. As personal loans are not secured with collateral, a personal loan can be settled easily.

Personal loan settlement process

Loan settlement often referred to as debt settlement or credit settlement, is a process that involves negotiation between the borrower and the lender to resolve a debt for a reduced amount. It is a situation that generally occurs when a borrower faces financial issues and challenges in making the full loan payments.

Sometimes, there are some situations where you find it difficult to service the loan EMI. This could be due to unexpected job loss, loss in business, a disability, or due to some other financial reasons.

In such situations, a borrower wants to settle the loan and the lender offers to settle the loan after the borrower expresses his/her inability to repay the loan due to unforeseen circumstances. By reaching an agreement with the lender, the borrowers can settle the loan for a lesser amount than the total outstanding debt. The final amount is mutually agreed upon, which is less than the loan outstanding amount and it is paid by the borrower to the creditor as a one-time payment.

However, the one-time loan settlement is not offered to all the debtors but only to those who can prove their genuine inability to repay the loan.

Steps for personal loan settlement

1. Evaluate your financial situation – For availing loans, the first step is to have a thorough look at your financial situation. Calculate your financial expenses, income, assets, and liability to determine what you can afford to offer as a settlement. Before initiating the settlement process, you need to determine the exact amount you owe.

2. Contact your lender – Reach out to your lender to express your intention to settle the loan. This can be done via. Phone, message, or in person. Be prepared to provide documentation of your financial crisis such as medical bills, job loss, or other relevant evidence.

3. Negotiation – Engage in a negotiation process with your lender. Explain your circumstances and propose a settlement amount to them. The lender may counter offer and the goal is to reach a mutually agreeable amount.

4. Get the settlement terms in writing – Once the settlement amount is agreed upon, ensure that you receive a written agreement from the lender. This document must outline the terms of the settlement and the agreed-upon amount also, including the impact on your credit report.

5. Make the settlement payment – Fulfill your end of the agreement by making the one-time settlement payment to the lender. After that ensure that you have received the confirmation of the payment in the form of a receipt or canceled check.

6. verify debt clearance – After the payment is made, contact the lender to ensure that the debt has been settled and that they will accurately report to the credit bureaus.

Points to be remembered

1. Opting for loan settlement may seem like an easy way out if you are unable to repay your loan on time but it also has a severe impact on your credit score.

2. A personal loan settlement is a great option when the borrower is not able to repay the loan but it also has an after-effect which turns out to be negative and starts affecting the credit score of the individual.

 3. This settlement can be a lifeline for those individuals who are facing overwhelming debt, but such a decision should be made after careful consideration.

 4. You must also check your outstanding loan components and learn about the steps involved in the settlement process.

We are a loan settlement agency offering services in PAN India. In case you need to settle your personal loan, you can get in touch for a free consultation.