LOAN SETTLEMENT PROCESS IN INDIA:
Updated on : 2020-Dec-30 11:50:10 | Author :
Loan Settlement means
Loan Settlement is also known as debt settlement, credit settlement or debt negotiation. The creditor settles on a debt reduction considering it as full and final settlement given to a creditor by the debtor. Loan settlement is a procedure to debt reduction in which the debtor and creditor agree on a reduced balance and that will be regarded as payment in total.
Process of Loan/Debt Settlement
Negotiating with the creditors and convincing them to reduce the overall debt and accept a lump sum amount is involved in the process of debt settlement. The process of debt settlement is deemed to be complete when the creditor grants your request and agrees to discount a percentage of the total amount that is due on you in exchange for a lump sum amount.
This process can be followed primarily in case of unsecured loans where you have not given anything as a guarantee. In case of secured loans like home loan, auto loan, gold loan etc wherein your commodity is kept as security, bargaining on reducing the debt amount is a tough task.
It supposed to be a type of win-to-win situation for both the creditor and the debtor. The debtor pays a reduced amount than what he actually borrowed and is saved from going through the court trials and tribunals. On the other hand, the creditor is able to draw out whatever the debtor is willing to or able to pay without filing bankruptcy that may waste the chances of creditor getting at least some amount of what he had lent.
When you make up your mind that you just got to pick a debt settlement, subsequent issue you would like to try and do is to determine if you'd need to hire a professional for the purpose or would you would like to go regarding doing it on your own. You also got to understand that after you hire a debt settlement company for the purpose they might charge you some fees in exchange for the service offered. If you choose to try and do it yourself, it's additionally sensible as you'll prove to be an improved communicator rather than the debt settlement team.
It is important for you to make yourself running in deep waters when it comes to your financial situation while you go ahead with the negotiations with your creditor. You need to make the creditor understand that you are in a very poor financial condition and if he doesn’t agree to debt settlement he may lose his chances of recovering whatever he may be able to.
Before you place your request for a settlement, say as an example with a MasterCard company, it's necessary for you to chop down your expenses on your Mastercard a minimum of 3 to 6 months previous before sending in your request. in spite of everything no adviser would settle for are square measure in need of sympathy or your monetary scenario is weak if your Mastercard statement reflects frequent journeys to hotels and volumes of shopping.
It is vital for you to list out the bills in order of your priority. Before you create a choice of surrendering the money certify you've got sufficient for requirements like food and rents etc.
You need sure positive that you just clearly convey it to your creditor that you just are ready to manage some funds and would need to settle one account before the funds get spent away. Whereas you highlight that you just have multiple accounts and might use your funds elsewhere for settlement your creditor may strike an honest deal.
It is wise that you just provide of paying up to thirty per cent of the quantity that is still unpaid at your end. Obviously, the person would try and strike one thing higher however if he asks for the entire world quite fifty per cent, you'll use that quantity to settle your account with another person instead of paying to the current one.
It goes while not saying that once you're able to strike a good deal with your creditor make sure you get the settlement in writing as a symbol with yourself. Make sure that the amount paid by you should be marked as full debt settlement and will be mentioned within the agreement. This could prevent from the trauma that you just may get after the case is headed to a collection agency by your creditor.
Advantages of Debt Settlement
The visible advantage of debt settlement is that this debt would go invisible from your creditor's list, thus, serving to you to set up your monthly budget and supplying you with scope for different settlements.
- If it's a debt that held a big proportion of your debt then obviously you will be ready to buy some peace of mind once you have got settled that debt.
- The monthly payments will witness a fall because the debt settlement program would erase the interests and costs for the outstanding amount.
- Over the limit, fees would also go down once you are part of the debt settlement program.
Disadvantages of Debt Settlement
If you decide for a debt settlement your credit score is sure to witness a fall. you must note that all such loan/debt settlements are reported by banks and financial institutions to CIBIL and alternative credit rating agencies, which, in turn, calculate your credit score keeping in mind this or the other such settlements. This contains a terribly unhealthy impact on your credit score. There are high possibilities that your application for any kind of loan or credit card may get rejected in future as you're considered less trustworthy in terms of loan repayment.
While your debts get reduced by way of debt settlement, the balance that's waived off reflects in the income side of your balance sheet thus leading you to pay taxes on the amount.
Make sure you've got enough funds to fulfil the settlement amount requirement. Your negotiations and settlement offer would go waste if you default in your payments.
Additional Resources:
DOCUMENTS REQUIRED FOR EDUCATION LOAN
DOCUMENTS REQUIRED FOR BUSINESS LOAN
DOCUMENTS REQUIRED FOR HOME LOAN
LOAN DOCUMENTATION (GOLD LOAN,VEHICLE AND AGRICULTURAL LOAN)
