1. The Big Question: What’s the Right Way to End a Loan?
Whether it’s a personal loan, home loan, car loan, or credit card debt, every borrower faces a crucial decision — how to close it smartly.
While loan settlement may seem like a quick escape, full loan closure is the more financially responsible route that safeguards your credit score and long-term stability.
2. What Is Full Loan Closure?
A full closure (also called a “foreclosure”) means repaying your loan in full, either through regular EMIs until completion or by paying the entire outstanding balance early.
✅ Benefits of Full Closure
· Improves Credit Score: Lenders see it as a sign of reliability.
· No Legal or Financial Burden: Loan account is officially closed.
· Peace of Mind: You get a No Dues Certificate (NOC) and clear CIBIL record.
· Better Future Loan Terms: Makes it easier to get new loans at lower interest rates.
⚠️ Things to Check
· Request a loan closure letter and NOC from the bank.
· Ensure the lender updates the closure with credit bureaus (CIBIL, Experian, etc.).
· Check for prepayment charges — some banks charge 1–3% for early closure.
3. What Is Loan Settlement?
A loan settlement occurs when a borrower is unable to repay the full amount, and the lender agrees to accept a reduced lump sum to close the account.
For example, if you owe ₹3 lakh and the bank accepts ₹2 lakh as a one-time payment, that’s a settlement.
⚠️ Drawbacks of Settlement
· Credit Score Hit: Your credit report shows “settled,” not “closed,” which can reduce your CIBIL score by 75–100 points or more.
· Future Loan Rejection: Banks treat settled accounts as high-risk.
· Not a Clean Exit: You may face difficulties getting loans or credit cards for several years.
4. When to Consider Loan Settlement
· Genuine financial hardship (medical emergency, job loss, etc.)
· When repayment restructuring or moratorium options are unavailable
· As an absolute last resort after discussing with your lender
5. Full Closure vs. Settlement: The Smarter Choice
Feature
Full Closure
Settlement
Credit Score Impact
Positive
Negative
Future Loan Eligibility
High
Low
Legal Standing
Clean Exit
Partially Closed
Cost
May include small fees
Reduced payout but long-term harm
6. Final Takeaway
While loan settlement might provide short-term relief, it often leads to long-term financial pain.
The best way to end a loan is through full repayment—either by completing EMIs or paying off early after planning your finances.
Always ask for written confirmation of closure, and monitor your credit report after 30–45 days to ensure it reflects a “Closed” status.
💡 Pro Tip: If you’re struggling, talk to your lender about EMI restructuring or tenure extension instead of settling. It keeps your credit score intact and protects your financial future.
Disclaimer:
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.
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