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If you want to do loan settlement then know its disadvantages! Read all the details here

Loan Settlement Disadvantages: Whenever we have to buy a home or have to study (Education Loan), we always choose the option of taking a loan from the bank. In the recent past, the Reserve Bank of India has increased its repo rate continuously. This has a direct impact on the interest rates of the loan. Many times, after some time of taking a loan, people are unable to repay its installment.

In such a situation, the bank gives the option of Time Settlement ie OTS to the customers. The biggest advantage of One Time Settlement is that you get freedom from the recovery agent. Along with this, the hassle of paying EMI every month is exempted, but OTS also has some disadvantages.

What is loan settlement?

If a person does not deposit the installment for 91 consecutive days i.e. 3 months after taking a loan from a bank, then in such a situation the bank puts his loan in the category of Non-Performing Asset (NPA). In such a situation, the bank issues a notice to the borrower and asks for payment.

Along with this, the bank also sends its recovery agent to the customer’s house. Even after this, if there is no possibility of getting the money back, then the bank gives the option of one time settlement to the customers. In this, the bank takes the principal amount of its loan and reduces or removes the remaining interest rate and the remaining charges. This reduces the loan burden on the customer and he deposits the money.

This big loss occurs due to loan settlement

Often people take loan settlement as loan closure, but it is not so. The loan is not considered to be over until you have paid all the loan installments. The biggest disadvantage of loan settlement is that it reduces the credit score of the borrower. Its direct effect is that if you have to take any kind of loan later, then there is a problem. Its effect remains on your CIBIL score for the next 7 years.

What options do customers have

If your financial condition is bad and you have taken any kind of loan and got its loan settlement done, then later you pay the loan interest and other charges in case of money coming. With this, your CIBIL score will be correct and when you go to any place to take a loan, you will not have any problem in taking the loan.

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