Before you connect with your lender for debt settlement, calculate how much you have already paid and how much you still owe. Use an amortisation table to understand the interest component and outstanding principal. Determine how much you can afford to repay. If your settlement amount covers most of the outstanding principal, the lender might not hesitate to close your account.
Debt settlement necessitates a lump sum payment. It is difficult to make financial arrangements when you are already dealing with a financial crisis. You can pay the settlement amount with a recently matured investment or with an office bonus.
Contact your lender's branch office and speak with one of their executives. Inform them of your financial situation. No lender wants the debt to be classified as a non-performing asset on the books (NPA). So, if you can show proof of your poor financial situation, the lender may be willing to accept your offer.
Participating in a debt settlement process over verbal communication is a no-no. You must complete the formal loan closure form with the proper signature of you and the lender's authorised signatory. The official letter you attach to the form must include the amount you are willing to pay as well as the reason you chose debt settlement. Keep a copy of the letter with you for future reference.
Make the loan settlement payment after completing the preceding steps. Avoid paying in cash. Use cheque payments to keep track of your payments. This will help you avoid any discrepancies in the future.
Most of the time, the lender neglects to send a loan closure report to the credit bureaus. When such things happen, the credit score suffers significantly. Following the loan's settlement, go to the credit bureau's official website to get your updated credit report. Check if the settlement has been reported there. If so, double-check the settlement amount to ensure it is the same as the lender agreed to when the contract was signed. Upload a copy of the NOC and any other supporting documents if there is a discrepancy.
Also Read: Planning to Pre-Close Your Personal Loan? Check When It Would Be a Good Option
Loan settlement is not always a bad idea. It can be beneficial in the following ways.
If you default on your loan, you could face a slew of serious consequences. The most common of these are asset seizure, legal action, and a significant drop in your credit score. However, if you enter into a loan settlement agreement with your lender, you can avoid these negative consequences.
If you had availed a larger loan in the past and are now having trouble managing your debt, debt settlement can lower your payment to a level making it affordable for you.
Ideally, debt settlement should be your last resort because it severely impacts your budget. Here are some of your alternatives to loan settlement.
Also Read: Things to Know While Closing a Personal Loan
Debt settlement should only be used as a last resort. It is the best option only if you anticipate a bankruptcy situation. When considering a loan settlement, carefully examine your finances to determine how much repayment you can afford. You must also check your outstanding loan components and learn about the steps involved in the settlement process. Following the completion of the settlement process, check your credit report for any discrepancies on the credit bureaus' websites.
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