Opting for a loan settlement is a sound option if you are unable to pay your debt due to an illness, job loss, or any other valid reason. Often times people mistake the term ‘loan settlement’ for loan closure but the two are completely different.
Most lenders provide different loan settlement options to fit the repayment capabilities of the borrower. For instance, banks can make an agreement with the borrower to lower the monthly payment or extend the repayment period, in order to mark the loan as settled.
If it is your first time requesting a loan settlement, here is a guide to help you understand the process. Offloading a portion of your debt can be easier with simple negotiating tips. Read on to know your options and make loan settlement an easy affair.
The Basics of Loan Settlement
Generally speaking, banks don’t advertise loan settlements because they want to avoid it. The reason is, when the borrower resorts to loan settlement, they offer a large, one-time payment for an existing loan. This payment may not be the full loan amount, but rather a portion of the debt.
The question would be, why would banks accept only a partial of the loan payment rather than get the loan amount in full? Banks and lenders tend to forgive or erase the remaining amount still owed because they are either strapped for cash or is trying to protect their financial bottom line.
Simply put, banks may be willing to take what it can get from the borrower instead of getting nothing at all. However, negotiating is a big part of the loan agreement because banks and lenders cannot let a borrower walk free with a 70 percent unsettled loan.
Depending on the situation of the borrower, some lenders may opt to forgive a portion of the loan in fear of a borrower’s eventual inability to pay off the entire balance. In this situation, the bank can take whatever it can get from the borrower.
Is a Loan Settlement the Right Move?
As mentioned, when going for a loan settlement, you need to come up with a substantial amount to offer the lender. If you’re strapped for cash, then this will be harder than you think. Offering only 30 percent of your outstanding balance can be a good start but is not recommended.
If you have no other choice than to shrink your loan and end your suffering, then you can go after the settlement. Note that personal appearance is part of the process and the lender will believe that you’re in a hard place if your reason is valid.
Tips for a Quick Loan Settlement
There’s no such thing as a quick loan settlement per se but the process can be a lot easier if you consult a debt negotiator. This professional can deal with the lender on your behalf but you still need to face the lender one way or another.
Here are some useful things to know in order to make loan settlement easy and successful.
Prepare for the One-time Payment
If you owe the bank about 20,000 Laksh in the form of a personal loan, be ready to come up with a substantial amount of cash, about 50 to 60 percent of the outstanding debt. This will be attractive to the lender instead of receiving minimum monthly payments.
The key here is providing more cash to make negotiations easier. Offering only 20 to 30 percent of the outstanding loan can be difficult and lenders will resort to acquiring other investments if there are any.
Provide Evidence of Financial Hardship
Some of the papers that can prove your financial hardship include proof of income and tax returns. If you are resorting to loan consolidation because of an illness or a family emergency, you can provide health-related documents showing doctors’ visits and medication.
Consolidate or Refinance
Part of the loan settlement negotiation is choosing to refinance the loan or debt consolidation. These options reduce a borrower’s obligations by extending the loan period or paying a smaller loan amount monthly. Present your suggestion and come up with an agreement with the lender.
A loan settlement requires a lot of work but ,if you have expectations on what may happen, the process will be simplified. Make sure the reason for resorting to loan settlement is valid so you have higher chances of shrinking your existing loan.
More importantly, be honest about your intentions and provide pieces of evidences to prove your claim.