Impact of loan settlement

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.