In this blog, we are going to cover everything you need to know regarding Personal Loan One Time Settlement, how it works, its advantages and disadvantages, and how platforms such as LoanFree can guide you in the process. At the end of this guide, you'll be clear if a one-time settlement is a viable choice for you.
What is Personal Loan One Time Settlement?
A Personal Loan OTS involves that a borrower and a lender agree with each other about the borrower to pay off a part of the total outstanding loan amount in one time. This settlement is usually lower than the total outstanding amount but after the borrower has paid it, the lender closes his loan account.
For example, if a personal loan of ₹5 lakhs is pending but you don't pay the EMI regularly, then the lender will come up with an OTS option for you and you will have to pay ₹3.5 lakhs to settle off the loan. Once you pay that agreed amount, ₹1.5 lakhs will be written off and the loan will be closed.
How Does One Time Settlement Work?
Here's how a Personal Loan One Time Settlement works. A Personal Loan One Time Settlement basically works in this way:
- Negotiation with the Lender
It begins with discussing your circumstances with your lender. You will present him with grounds for not paying back the loan as previously agreed and then request a settlement. Most lenders take into consideration and are ready to negotiate when they feel that the borrower is facing legitimate hardship and will not be able to pay it fully.
- Proposal by the Lender
After examining your financial condition, the lender may offer an amount that is much less than what is outstanding against the loan. It takes into consideration the repayment history as well as the amount due along with how likely the lender thinks they can recover the principal amount entirely.
- Single Lumps Sum Payment
Once you clear the amount due, you have to pay that amount as a lump sum for the given period. This is a one-time payment, and once paid, your loan account would be termed as settled.
- Closure of Loan Account
After the payment, the lender will close the loan account. However, it is always wise to receive a "No Objection Certificate" or settlement letter from the lender proving the settlement of the loan. This again is a good practice because at many places this certificate may serve as proof, especially when you apply for a credit card.
- Effect on Credit Score
Even though you have thought the loan to be settled, it will be shown to the credit bureaus as a "settled" account, which can have a determinable effect on your credit score. A settled loan is not the same thing as the fully repaid loan, and this may diminish your capability to achieve future loans.
Benefits of Personal Loan One Time Settlement
Paying a one time settlement can also have a number of benefits, mainly if you are under tremendous burden regarding repayments. Here are a few prominent advantages:
- Relief from Debts
The one-time settlement mainly benefits by providing immediate relief from the debt burden. By paying a reduced amount, you can close the loan and remove the stress of making monthly EMI payments.
- Avoid Legal Action
If you are not able to pay back the personal loan, lending companies will sue to collect the remaining outstanding amount. This can be stopped if the loan is settled in a single settlement whereby there is less going through of law procedures.
- Relieving Pressure on the Bank Account
Since the settlement amount usually is lesser than the outstanding balance, it reduces your overall burden considerably, especially in cases of numerous debts or other liabilities.
- Quick Resolution
A one-time settlement helps resolve your debt quickly. With a one-time payment as a settlement, the loan is closed, providing you with peace of mind and allowing you to shift your focus to rebuilding your financial stability.
Advantages of Personal Loan One Time Settlement
On the other side, a one-time settlement with its advantages also has some disadvantages. Here are some disadvantages associated with it:
- Potential Damage to Credit Score
The highest downfall of a one-time settlement is that it can reduce your credit score. A settled loan is not put down by a credit bureau as "closed," but rather as "settled," which in turn becomes a bummer on your credit score. It might disqualify you for future loans or credits because a lender may declare you a risk.
- Future Loan Approval Difficulty
A settled loan indicates to potential lenders that you could not repay your loan in full. This may even affect getting loans or credit cards or even home loans in the future. They may refuse giving you a loan or offer it at a higher interest rate due to the risks involved.
- Legal and Financial Implications
In some cases, the lender may not agree to a settlement and could proceed with legal action to recover the full amount. It's essential that a settlement is negotiated carefully to ensure both parties agree before such a settlement is officially proceeded with.
- Short-Term Cash Requirement
Because it is a one time settlement, you would require carrying the amount with you. It can, therefore, be a burden on your finances if not very resourceful with the savings in case you are not really.
Is Personal Loan One Time Settlement Right for You?
One time settlement to personal loans One time settlement could be an effective option if you are going through a critical financial crunch and cannot carry on with your regular EMI pay. However, be cautious and see the pros and cons before arriving at a solution.
Before taking this one-time settlement, here are a few questions that you would need to ask yourself-
Are you in a serious financial crisis that won't let you carry on with your loan payments?
Will you pay the entire sum that is owed in one settlement?
Do you know how this lump sum may impact your credit score and future borrowing possibilities?
If so, a lump sum settlement payment might be just what you need.
How LoanFree Can Help
At LoanFree, we understand that loan repayment might become a difficult thing, especially when changing circumstances intervene in one's financial situation. We, as professional loan consultants, shall guide you through the process of Personal Loan One Time Settlement.
Our team of experts is here to assist you to negotiate with your lender and assess your financial situation so that we can avail the right option of settlement for your benefits. Our ultimate objective is to free you from debt with customized solutions to your debt problems.
Conclusion
A One Time Settlement with Personal Loan may help to a great extent in relieving debtors in distress. While it would well offer respite from the burden of debt to a large extent and save the person from legal hassles, it is very important to take into account the long-term effect on credit score and future borrowing ability.
If you really intend to settle your debt all at once, you would need a reliable partner like LoanFree. We would be your guide in the whole process, negotiate with your lender, and guide you in settling your loan in a way that would least affect your finances.