If you are thinking of settling a loan for less with the bank, then don’t do it. The gain will be temporary and is not going to be a permanent solution. Rather this settlement will give rise to several other problems in future. Read the following story of Arvind and you will get to know the adversities of settling a loan.
Story of Arvind
Arvind had two credit cards from HDFC, one from ICICI and one from Axis bank. Due to certain adverse conditions, he was forced to use all his credit cards. And when he couldn’t meet his expenses, he borrowed personal loan from HDFC bank. Unfortunately, he was sacked out of his job and the market condition was so sluggish that he could not find a new job for few months. During this jobless period full of financial crisis, he failed to meet his obligations towards credit card bills and personal loan EMIs (equated monthly installments).
Action by the bank
Bank officials started sending reminders to him on frequent basis. Some of the representatives even visited his residence. Later, they contacted his friends and family members as well. The recovery agents even threatened Arvind to repay his debts otherwise they will spoil his CIBIL report and in future he will not be able to get any loan or credit card from any bank. Frustrated by the torture, he approached the bank manager for the solution. He explained his situation to him and informed him that he is not a fraud, he wants to pay his dues but he needs some time.
Solution offered by the bank
Banker realized that in future he will not be able to realize anything from Arvind. So he decided to recover whatever he can from him. He told him settle his account for less. Banker informed him that NOC will be forwarded to him at his registered address within 15- 20 days. The offer was tempting. Arvind thought that it is a beneficial proposition and therefore also agreed quickly to settle his account. After doing, he will at least get rid of the daily follow ups and harassment by the representatives of bank.
Inside story of settling
Please understand that bank has not done a charity by settling your account for less. Bank settles only for a simple reason that they want to recover whatever they can from you. After all, something is better than nothing. Moreover, bank is not going to forgive you for your non-payment as they will send a report to CIBIL stating that this person has settled his loan amounting XXX by paying XYZ amount. Please mark ‘SETTLED’ in front of his name. Now, if a person has not repaid the amount in full, his status will continue to show settled in CIBIL’s report which in itself is a negative sign for you and will affect you in future.
Consequences of settling
Two years later, Arvind applied for a car loan and his application was rejected. When he enquired, he got the reason that his name is there in the defaulter’s list of CIBIL and that he cannot get loan for 7 years commencing the date of settlement. Now, after 7 years, even if his name will be removed but still he will have to face hardships in getting a loan because of low credit score. However, it is possible to improve your credit score but it takes time.
A settled status marked by CIBIL is indicative of the fact that you must have failed to meet your debt obligations in past and that you have not paid your debts in full. Lenders consider this as a negative sign and are reluctant to offer loans to such persons. If you plan or foresee to apply for any loan or credit card in future, then avoid settling your account.