When you take a particular loan, youalways plan out the repayment for a certain period of time. You should alwaystry your best to make the repayment within the loan tenure. However, there can be consequences and emergencies that just do not allow you to make the repayment. If you find that you are not able to keep up the repayment commitment, you will eventually approach your financial institution. When you try to speak about your problem, the financial institution may offer you a solution of one-time settlement. You may feel that it has been a great favour to you until you immediately approve it. However, you are completely unaware of the fact that the one-time settlement status on your credit report an actually harm your financial health.
What happens in a loan settlement?
If a particular borrower is not ableto make the repayment due to a genuine emergency or for other reasons, theone-time settlement option is offered by the financial institutions. The loan provider offers the borrower a choice to complete the repayment on completion of six months of nonpayment of dues. It can be taken as anything like a job loss or a serious chronic health condition. Financial institutions will consult with the specific borrower and, after considering his circumstances, write off the entire difference between the amount paid and the amount owed. The loan provider eventually reports the loss, and the settlement status is provided on the credit report of the borrower. It may appear to be a sigh of relief at first, but it comes at a high cost in the long run. For business loan interest rate visit : business loan interest rate. For business loan interest rate visit : business loan interest rate.
Loan settlement impacts your credit score
Writing off loans immediatelyregisters in the borrower's credit report. Though the financial relationshipbetween the bank and the borrower has ended, the one-time settlement history remains for more than seven years. The credit report will hold the one-time settlement record for more than seven years. Therefore, if any borrower has to take a loan during these seven years, It will become very expensive and difficult to get approval. Loan providers will never try to approve a loan application when there is a settled status in the credit report. Not only that, settled status on the credit report eventually drops your credit score by 75 to 100 points. The loan providers make it very difficult for individuals with settled status to get a new loan.
Wrapping up
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