Business News | Is Loan Settlement Legal in India? Everything Borrowers Need to Know
Loan settlement is a legal process in India, but it negatively impacts your credit score.Summary
Loan settlement is a legally valid process in India, recognized by the Reserve Bank of India (RBI), and is available to borrowers facing genuine financial difficulty. It involves a formal negotiation where a borrower pays a reduced lump-sum amount to resolve the account, often referred to as a One-Time Settlement (OTS). However, unlike a full repayment, a settled loan is reported to credit bureaus with a "Settled" status, which can negatively affect the CIBIL score and remains on the report for up to seven years. While the stigma surrounding settlement is a concern, it is often a better option for borrowers in default than continued non-payment. The process involves the account moving into delinquency, being classified as an NPA, and then negotiating a settlement amount. Platforms like FREED assist borrowers by managing the process, providing support against abusive recovery calls, and helping with credit score repair post-settlement.
(Source：Latestly)