Winning Bizness Desk
Mumbai. Many people take loans to start a new business or to expand their business. However, sometimes there are hurdles in repaying the loan. However, circumstances such as job loss, business loss or illness can lead to difficulties in repaying loan installments. Defaulting on loan installments increases interest and penalties on the borrower. In such situations, people opt for debt settlement. Although this solves some problems temporarily, it has bad consequences later on. Finance Ministry has directed private banks to make a one-time settlement of loan defaulters between Rs 20 lakh and Rs 1 crore by mutual consent. This will help you to get rid of small debts. Many times banks offer the borrower the option to settle the loan on their behalf. Also, in many cases, borrowers themselves approach the bank for settlement and seek relief through settlement. Although there is temporary relief in both cases, ultimately it is the borrower who has to bear the loss.
Borrower is offered for a loan settlement
When a person does not pay the loan installments (EMI) for more than 90 days i.e. more than 3 months, the banks or related financial institutions ask the borrower the reason for non-payment of EMI. Banks or finance companies scrutinize the claim of the person. If they feel that the borrower does not have the ability to repay the loan, the borrower is offered a loan settlement. In one time loan settlement, the bank tries to settle the loan by depositing at least the principal amount in one payment. Banks waive interest, penalties or legal costs to the borrower in these circumstances. The settlement amount is decided keeping in mind the repayment capacity and circumstances of the borrower. After paying the settlement amount, the bank closes the loan account by recording the difference between the total outstanding amount and the settlement amount.
Loan Settled Vs Loan Closed
Loan settlement brings immediate relief, but then comes bad consequences. After loan settlement, the loan account status shows 'Settled' instead of 'Closed'. The status of the loan account is shown as 'Closed' after the loan is paid on time and the loan is closed. This information is passed on from financial institutions to credit rating agencies. A settled account is not normally a closed account, so it is considered a negative rating. This affects your credit score badly and may make it difficult for you to get a loan or credit card for years to come.
There are other ways...
Loan settlement should be the last option if you are facing difficulties in repaying the loan. Apart from this, there are other ways, with the help of which you can get out of the debt trap. If you have any savings or investments, use it to pay off the entire loan. Try to pay the bank dues by taking an interest-free loan from relatives or friends. Instead of settling the loan, ask the bank for more time to repay the loan.
