Loan settlement: How it may change your credit score
Loan settlement can have a significant impact on the borrower’s CIBIL Score. While it provides relief from immediate financial strain, it may lead to a dip in the borrower’s credit score. The settlement status is typically reported on borrowers’ credit report, indicating that the debt wasn’t fully paid till all the dues are cleared.
Moreover, loan settlement can also impact the borrowers’ future creditworthiness and they might not get a loan in future from any leading financial lenders.
Know the key reasons loan settlement can harm your credit score
Marked as "Settled" Instead of "Closed" – When you settle a loan, the lender reports it as "settled" rather than "closed," signalling to future lenders that you didn’t repay the full amount.
Drop in Credit Score – Since settlement indicates financial distress, credit bureaus may lower your credit score, making future borrowing more difficult.
Record Stays for Years – The settlement status remains on your credit report for up to seven years, affecting your ability to secure new loans.
Reduced Loan Eligibility – Banks and financial institutions may hesitate to approve loans or credit cards for borrowers with a settlement history.
Alternative Solutions – Instead of settling, consider negotiating for lower EMIs, extended tenure, or liquidating assets to repay in full, which helps maintain a healthy credit score.
Therefore, borrowers are advised to understand the long-term impact on their credit score and future creditworthiness.
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Frequently asked questions
Basis the loan type, the fees and charges may vary. You can check the specific charges applicable to your loan by visiting the 'relations' section and selecting your Loan Account Number (LAN).
You can foreclose a Bajaj Finserv Loan at any time after clearing your first EMI. However, this can vary on a loan basis and will be applicable as per the loan agreement.
No part-prepayment charges are applicable on the Bajaj Finserv Loan.
After making a part-prepayment, it takes up to 24 hours for the amount to get adjusted towards its Bajaj Finserv Loan account.
Note: The cheques and demand drafts clearance process will take approximately 3 business days.
No, settling a loan usually results in a drop in your credit score. When a lender marks a loan as “settled” instead of “paid in full,” it signals that the borrower did not repay the full amount. This negative remark can affect your creditworthiness and future borrowing prospects.
Yes, lenders report settled loans to credit bureaus. The loan status is marked as “settled,” which indicates partial repayment. Although this resolves the account, it adversely affects your credit profile. This entry typically remains on your credit report for up to seven years, impacting your ability to secure future loans or credit.
For loan settlement, you generally need a settlement offer letter from the lender, your identity proof (such as PAN card or Aadhaar), loan account details, and payment receipts. It’s also advisable to obtain a ‘No Dues Certificate’ or ‘Settlement Letter’ post-payment as proof that the settlement was completed.
Yes, loan settlement is generally better than bankruptcy. While both negatively impact your credit score, settlement shows an attempt to resolve dues, whereas bankruptcy indicates complete inability to repay debts. Bankruptcy remains on your credit report longer and carries greater financial and legal consequences than loan settlement.
The success rate of loan settlement negotiations varies, typically ranging between 50% and 80%, depending on the lender, the amount overdue, and your financial condition. Lenders are more likely to accept settlements if the borrower demonstrates genuine hardship and lacks repayment capacity, but success is not guaranteed.
