One time settlement
Consider a one-time settlement plan when the arrears are generally over a period of six months. Give an opportunity to settle the loan with maximum concessions after assessing the financial situation and repayment capacity for absolutely reasonable reasons and humanitarian consideration. Partially or fully overdue loans can be considered for one-time settlement.
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Meanwhile, after closing the loan account through one-time settlement, the account holder should take care to purchase a No-dues certificate. This will be useful in the future to prove that no additional interest or other charges remain and the liability has been settled. But the one-time settlement scheme, which may seem profitable on the face of it, but the fact is that an adverse consequence also awaits.
First Madhuri and then Kaka
In the case of non-payment of loan dues, it is not wrong to initially consider that one time settlement scheme is beneficial. But the fact is that its real benefit is only for a short period of time. Because the credit score (CIBIL score) of the customer is adversely affected when the loan dues are settled through one time settlement scheme. This makes it difficult to take new loans in future.
A setback on Sibil’s score
A non-performing asset (NPA) when a loan defaults for more than 90 days and after six months the outstanding loan amount is recorded in the bank’s loss account and is set aside or written off (this is only technical). When a customer defaults like this, the financial institutions also inform the credit score agencies. Therefore, the loan liability is reduced and paid in one lump sum and this will have an impact on the customer’s credit score.
Typically 75 to 100 points can drop in a consumer’s credit score. And this will be recorded as settled in the credit history report for the next seven years. While approaching a financial institution for taking a new loan during this period, this settled reference in credit history is going to create the biggest obstacle. In short, the one-time settlement plan is sweet at first and sour later.
Can you get a new loan?
The Reserve Bank of India (RBI) has issued a general directive not to give new loans immediately to customers who have availed the benefit of the one-time settlement scheme. A new loan is generally granted only after at least one year has passed. Meanwhile, in the case of agricultural loans, the RBI has also clarified that this interval for granting new loans after settlement can be fixed by each bank.
How to escape?
The main point is that there is a general lack of understanding about the impact of the Single Settlement Scheme. Don’t look at one-time settlement as the only recourse if the loan falls due. Check whether family, friends or relatives can provide financial assistance if you need to find income after a temporary break, whether due to job loss, medical treatment or an accident. This is the best way to get out of crisis. Or ask the bank to extend the repayment period or waive the interest for a fixed period.