Loan settlement is one method that frequently makes a borrower feel relieved if he is weighted down with debt. It allows you to negotiate with the lender and pay a lesser amount in closing the loan. However, most people are curious whether loan settlement would give them the opportunity to take out another loan. The answer is affirmative, but it is not going to be easy.
At Guardians Legal Solutions, we empathize with those borrowers who have passed through the loan settlement process. In this blog post, we will discuss how loan settlement affects your credit score, the chances of getting a new loan, and what you can do to improve your financial standing.
How Loan Settlement Affects Your Credit Score
When you get a loan settled, your loan is no longer fully paid. This will be the lender entering it as settled in your credit report. This is different from being “closed” or “paid in full”, which indicate that you have paid all the money you owe.
The way lenders and banks view the settled status is very negative. It also has an adverse impact on your CIBIL score, which is one of the most important things lenders look at when you apply for a new loan.
A lowered CIBIL score diminishes the chances of you getting a loan in the future.
You will be viewed as a high-risk borrower by lenders, who will be wary of you defaulting again.
Your application for a loan may get rejected or approved at very high-interest rates and with very stringent terms.
However, that does not mean you will never be able to secure a loan again. If you take the right steps, you will be able to recover your creditworthiness and qualify for loans in the future.
How to Get a Loan Again After a Loan Settlement?
Yeah, after a loan settlement an applicant may secure a new loan, but this entirely depends on several factors:
1. How Long Ago the Loan Settlement Was
If your loan was only recently (last 1-2 years) settled, a lender might be significantly wary about doing business with you. However, if anything more than 3 years to 5 years back with a good account kept since your loan settlement could enhance chances of approval.
2. If Your Credit Score Has Improved
A CIBIL score above 750 is ideal for getting loan approvals. With the loan settlement, your credit score may have suffered a lot. So your next step is to improve your score (which we will discuss below) for higher chances of getting approved.
3. YourCurrent Financial Situation
If you have sufficiently stable employment, a large income, and existing debts, a loan might be given. The lenders must feel that you can actually repay the new loan.
4. Type of Loan
Secured loans (home loans, car loans): Easier to get as they are backed by collateral.
Unsecured loans (personal loans, credit cards): Harder to get because they have higher risk for lenders.
5. Lender Choice
Some banks and financial institutions have a firm no-transact policy when it comes to anyone with a settled past. Nevertheless, there are NBFCs (Non-Banking Financial Companies) and digital lenders willing enough to grant you a loan, albeit at a higher rate of interest.
How to Improve Your Chances of Getting a Loan After Settlement?
1. Pay Off Any Remaining Debts on Time
If you have ongoing loans or credit card dues, it is important to pay them completely and on time. This will convince the lenders that you have transformed into a responsible borrower.
2. Improve Your Credit Score
Keep checking your CIBIL score regularly and ensure any mistakes in your report are corrected.
Use a credit card responsibly: spend only what you can repay and clear full dues every month.
Take a small loan (secured loan or consumer durable loan) and repay it on time to build trust with lenders.
3. Maintain a Stable Income Source
Lenders will be more inclined to approve borrowers with a steady source of income and job stability. Thus, if you can show that your financial situation has improved, your chances of getting a loan approved will be better.
4. Get a Guarantor or Co-applicant
If your credit score is still low, it can help to apply for a loan with a co-applicant (spouse, parent, or sibling) who has a high credit score. A good guarantor will help convince lenders to approve your loan.
5. Wait for a Few Years Before Applying Again
If you recently had a loan settlement, you should wait about 2-3 years before applying for a new loan. During this time, focus on improving your credit score and financial standing.
Final Thoughts: Is It Possible to Get a Loan Again After Loan Settlement?
Yes, it is possible but regaining the trust of lenders would require effort and time. Loan settlement has an adverse effect on the credit score, but with better financial habits, repayment of loans on time, and evidence of stability in financial standing, lenders would consider you worth lending to.
At Guardians Legal Solutions, we also assist every individual in maneuvering through the troubled waters of a loan settlement and offer guidance on the best possible ways of reviving their financial well-being. If you need professional assistance, do get in touch with us!
Need Help with Loan Settlement or Credit Score Improvement?
visit www.guardianslegalsolutions.com to get expert legal and financial guidance.