Loan settlements are often misunderstood, leading to confusion and financial missteps. Many borrowers fear that settling a loan will permanently damage their credit or that they have no legal rights in the process. However, loan settlement is a legitimate financial strategy that, when handled correctly, can provide relief from overwhelming debt.
At Guardian Legal Solutions, we specialize in helping borrowers navigate loan settlements legally and effectively. In this blog, we debunk common myths about loan settlements and reveal the facts to help you make informed financial decisions.
Myth #1: Loan Settlement Is the Same as Loan Waiver
Fact: A loan settlement is an agreement between the lender and borrower where the lender agrees to accept a reduced payment as final closure of the loan. The remaining balance is written off, but it is not a loan waiver. A loan waiver, on the other hand, is when the government or a financial institution completely forgives a loan without expecting repayment.
✅ Example: If you owe ₹10 lakh and negotiate a settlement at ₹6 lakh, you must pay the agreed amount, and the remaining ₹4 lakh is written off.
Myth #2: Loan Settlement Clears Your Credit History
Fact: While settlement closes your loan account, it does not remove the record from your CIBIL report. A settled loan is marked as “Settled” instead of “Closed”, which indicates that the full loan was not repaid. This can impact your credit score negatively, but it is still better than a loan default.
✅ Tip: After settlement, work on rebuilding your credit score by making timely payments on other loans or credit cards.
Myth #3: Once You Default, the Bank Will Take Legal Action Immediately
Fact: Banks prefer to recover the loan through negotiations rather than costly and time-consuming legal proceedings. As per RBI guidelines, financial institutions must provide ample opportunity to borrowers to resolve their debts before initiating legal action.
✅ Tip: If you are struggling with repayments, contact Guardian Legal Solutions to negotiate a settlement before legal action is taken.
Myth #4: Loan Settlement Means You Can Never Get a Loan Again
Fact: While a settled loan can lower your creditworthiness, it does not mean you will never be able to get a loan again. Many banks and NBFCs offer credit to borrowers who have settled past debts, provided they show improved financial behavior.
✅ Tip: After settlement, maintain a good credit score by paying your bills on time and keeping a low credit utilization ratio.
Myth #5: Banks Can Harass Borrowers for Loan Recovery
Fact: RBI guidelines strictly prohibit banks and collection agents from using threats, harassment, or excessive calls to recover loans. Borrowers have legal rights, and banks must follow ethical debt collection practices.
✅ Know Your Rights: If you face harassment, you can file a complaint with the Banking Ombudsman or RBI Consumer Grievance Cell.
Why Choose Guardian Legal Solutions for Loan Settlement?
At Guardian Legal Solutions, we provide expert assistance in:
✔ Negotiating the lowest settlement amount ✔ Ensuring fair treatment by banks as per RBI guidelines ✔ Protecting borrowers from harassment and legal trouble ✔ Helping clients rebuild their credit scores post-settlement
💡 Did you know? We have successfully settled ₹500+ crores in loans for our clients, ensuring peace of mind and financial stability.
Conclusion
Loan settlement is a powerful financial tool when handled correctly. By knowing the facts vs. myths, you can make informed decisions that protect your financial future. If you’re struggling with loan repayment, don’t wait for the situation to worsen—reach out to Guardian Legal Solutions today and get expert guidance!
🚀 Take control of your finances now!