Does Personal Loan Settlement Has Any Impact On Your Credit Score?

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Who doesn’t face financial issues in life? We all do. In such situations, the best way is to reach out to the banks for the loans and that’s what we all do. But, most of the time we forget to do our homework before going for the loan and do not research our repayment capacity. This might put us in trouble, as it is never advised to borrow any amount from a bank which you aren’t able to repay, as this can simply affect your goodwill and of course credit score in the long term. Credit history is something that can totally blacklist you from the bank databases, and you wouldn't ever be able to get a personal loan in life. To avoid all such unfavorable circumstances, it is recommended, to take the personal loan decisions wisely after analyzing all the possibilities and whether we can easily repay the loan or not. In case we fail to repay the loan, we have to go through the settlement process, which directly affects our credit score. Let’s go through the process of settlement and how it affects your credit history.

What is a personal loan settlement?

Personal loan settlement is a process to take off the debt of your head, by just paying a part of the loan amount rather than paying the entire amount. It is also called loan personal loan defaulter settlement as this is done in the worst situations wherein the borrower announces that he/she won’t be able to repay the loan or not capable to afford the EMIs and want to conclude it, then the bank gives them the option of settlement. Once the borrower pays the amount asked by the lender, which is a part of the amount left from the principal amount subtracting the paid EMIs, The loan is considered to be closed, as it is “settled”.

Though, this settlement only takes place considering a genuine reason of the borrower to not repay the loan and does affect his/her credit history terribly.

Is Personal Loan Settlement the right choice?

When you pay a lesser amount than you owe to the bank during the settlement process, it looks very relieving and easy, whereas, it is one such decision that can make you face terrible consequences in the future, especially when your goodwill and credit history is concerned. It is even advised that you try to manage and repay the loan from other sources but never a settlement. In fact, one should only go for settlement, when you have no other choice. Let’s check out how you can repay a loan without going for a settlement. 


1.Try to liquidate your assets like insurances, mutual funds, jewelry, or property if any, and repay your loan in order to save your goodwill.

2.If you have good terms with the bank, ask them to extend the tenure of your loan or decrease the EMI amount, whatever works for you.

3.In case you have a lot of loans that are running and affecting you to repay properly, consult with a bank and try to consolidate into a lower interest loan.

4.You can also try to take a mortgage loan in order to repay the current one, for that you wouldn’t have to sell your assets, but you can keep it as a mortgage.

5.Whenever you borrow from a bank, always keep a backup to repay the loan.


Whenever you go for a settlement rather than fully repaying the loan, your lender informs the other credit scoring agencies that you have not fully paid it but settled it. This information spoils the goodwill of the borrower in front of the lenders and hence, the chances of you getting a loan in the future become zero.

How does the settlement impact your credit score?

The fact is, the settlement does impact your credit score drastically, and let us see how.

1.When you opt for a settlement, your credit score decreases to a great extent which makes it almost impossible for the borrower to get any loan again in the future from any bank across the country and even the world.

2.When you ask for a settlement to the bank, no matter if it is for a reason which is really genuine, but as you do not pay the loan fully to the bank, your credit history always makes your profile a defaulter one.

To save your profile from being on the list of loan defaulters, you should always keep the above things in mind, and then only take a step ahead for settlement. So, do watch it. 

You should consider all the consequences of loan settlement. It indeed has a huge impact on your credit score and you should consult with loan advisors to make the right financial decision. This way you can avoid trouble in future borrowing. 

At Loans Paradise, you will get reliable advice on how loan settlement. Now, you don’t have to worry about anything. Just reach out to a trusted loan advisor and make the right financial decision while going with loan settlement.