When you are in a financial crisis, you need money. Borrowing money from a bank or financial institute is the best and the easiest way. When you get a loan, there is a condition that you are supposed to repay it in equated monthly installments or EMI. The number of EMIs will be decided by the bank.
If you repay each EMI without any gap, then the loan gets settled within the predefined time limit. However, if you fail to repay it, then the loan turns into a Non-performing Asset or NPA. An NPA does not generate any business for the bank.
No bank or finance institute will like NPA. It is because NPA affects profitability. Hence, it tries npa account settlement.
What is NPA Account Settlement?
When the bank finds that the repayment of the loan is impossible, it offers the option of a one-time settlement. Typically, when the borrower fails to repay the EMI for six months and more, then the bank approaches the borrower for a one-time settlement.
This is an option of npa account settlement that is considered in selected situations.
For a borrower, this option gives an opportunity to settle the account. However, it affects the Credit Score of the borrower adversely.
When a bank goes for loan account settlement, the loan status becomes “settled”, and the CIBIL score of the borrower drops by at least 70 to100 points. It is a big reduction.
Impact of settlement on CIBIL
While settling down the loan, the bank informs the case CIBIL. It informs the same other legitimate and recognized rating agencies also. Indeed, there will be no financial transaction between the borrower and the bank after npa account settlement, it affects the CIBIL score negatively.
The word “Settlement” shows the inability of the borrower to repay, and therefore, it drops the CIBIL score. The credit rating will be marked by CIBIL and maintained for seven years.
The borrower will be unable to take any loan during thisperiod. Lenders will not give loans because they will suspect the repayment capacity.
Most borrowers do not know the impact of non-performing loan account settlement. Since the CIBIL score remains unchanged for a long time, it will cause an adverse impact on the market image and credibility of the borrowing individual or organization.
When you find it difficult to repay the loan, you should follow other repayment methods and not a one-time settlement.