Loan settlement typically has a negative impact on your credit score. It may depend on many factors such as the current condition of your credit, the reporting practices of your creditors, the size of the debts being settled, and a multitude of other variables. In general, the goal of loan settlement is to get rid of some of your debt, particularly if you can’t afford to pay the entire outstanding. Have more fun with the lord of ocean free play.

Before going further, we need to know, what exactly “loan settlement” means?

To provide a better understanding on the concept of the loan settlement, here I am going to explain with a context. Let’s say you have taken a loan from a lender. Now, because of an illness, accident, work loss, or some other circumstance you are actually unable to make repayment. In this scenario, you’ll tell the lender of your condition and ask them to offer some time off and reduction in the loan amount before you settle.

In such cases, you could be offered a one-time payment option by the lender where you take some time off and settle the reduced loan in one go. As you have been given some time and reduction, you would readily accept this offer. When you settle the loan account, the status of the loan will be reported as ‘settled’ in the credit report and not as “closed” which is a negative remark.


If you have genuine issues and are finding it hard to make the repayment, the lender may provide a non-repayment period of 6 months. You will only be given this option if you agree to settle the loan through one time payment method. The lender must write-off a certain amount so that borrower can settle the loan in one go. The amount to be written-off is based on the extent of the situation and the repayment capabilities of the borrower.


When a lender decides to write-off the borrower’s debt, it will be reported to the CIBIL bureau & other rating agencies. Later, they will interpret this as a negative remark. In addition, it will not be considered by CIBIL as a closed account; rather, it will be referred to as resolved/settled. Furthermore, if a loan status is documented as settled, the borrower’s credit score may fall by 75-100 points and stays in the CIBIL report for the next 7-8 years. Therefore, if the borrower seeks further financial assistance or applies for a new loan, the lender will straightly reject the loan application because of the settled status of past loan account and low CIBIL Score.


As a borrower, if you’re facing difficulty in repaying your loan due to reasons like unemployment, severe medical condition, or due to other uncertainties then you can choose to settle the loan account. Once your financial situation stabilizes you can approach us and we can help you close the settled account and improve your CIBIL score.

Otherwise you can liquidate your savings or investments to pay off the outstanding loan amount completely. You can also think of any other possible methods to raise money enough to close the loan account. It is highly recommended to consider ‘settlement’ as the last option.

Also, you can request the lender to extend your repayment term, re-evaluate the monthly installment structure, so that you can make regular monthly payments.

Worry not if you have settled the loan account. It can still be fixed and the CIBIL records can be updated from “Settled” to “Closed”.

Points to be Noted

Repaying the loan is a big responsibility because it’s the public money and if you are irregular it will hurt your peace of mind as well. Thus, here are some of the points to be noted before applying for a loan.

  • Apply for the loan as per your financial requirements.
  • Make sure that you have an alternate means to repay the loan.
  • Ensure your credit capability is never misused.
  • Most importantly, remember that the settled status of the loan stays in your credit report for the next 7 years and blocks you from getting a loan for the period.

Are you looking to improve your CIBIL Score? contact us

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