Business News Desk, If you have become a defaulter due to non-payment of home loan and you have decided to settle the loan, then understand one thing carefully. By settling the home loan, you definitely get rid of paying EMI every month and recovery agents, but your loan is not closed by this. If you do not close the loan after settlement, then no bank will easily give you loan in future. Know what is the way to close a settled home loan.
What is a settled loan?
Many people consider settled loan as loan closure, but there is a difference between the two. Settled loan is a middle path, which is agreed upon by both the borrower and the bank. In this, the defaulter has to pay his outstanding principal amount in full, but the interest amount as well as penalty and other charges can be partially or fully waived off. On settling the loan, the bank does not get the full amount which the borrower has to return during his loan tenure.
What is loan closure?
When the loan is closed, the borrower does not owe anything to the bank. In such a situation, after the loan is closed, a certificate of no due payment is given by the bank, which is proof that the borrower has repaid the entire amount taken as loan from the bank, including interest.
Settled loans worsen your CIBIL report
While settling the loan, banks write ‘settled’ in the borrower’s credit history. This means that the borrower has not repaid the stipulated amount. There is a lot of harm in writing ‘settled’ in the credit history. This can reduce the credit score by 50 to 100 points or even more. If the borrower settles more than one credit account, then the credit score can reduce even more. This can be mentioned in the account status section of the credit report for the next seven years. In such a situation, banks do not consider that person trustworthy and it becomes very difficult for them to take a loan in the future. They can also be blacklisted by the bank.
How to close a settled loan
Settled loans can also be closed. The way to do this is that when you become financially capable, you go to the bank and tell them that you want to pay the due amount i.e. principal, interest, penalty and whatever discount you got in other charges. When you return the entire loan amount to the bank including interest and other charges and you do not have anything outstanding, the bank gives you a certificate of no due payment in return. After this, the bank informs the credit bureau that your account has been closed. This also improves your bad credit score.
