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The Lifecycle of the Loan Settlement Process

The Lifecycle of the Loan Settlement Process

Lifecycle of a Loan Settlement 

Debt/loan/credit settlement refers to the process where a debtor pays the amount due to the creditor as a final or full settlement. It is a type of approach on reducing debt in which an agreement is arrived at on a lowered balance, which is considered as full payment. Here are the different aspects of a loan settlement process.

Process of loan/debt settlement 

The debtor negotiates with the creditor to decrease the total debt amount and convinces the creditor to accept a sizeable repayment offer.  The settlement is considered as completed only after the creditor assents to the request and waiver of a certain percentage of the total sum due in exchange for a single large payment.

Viability of settlement 

This type of settlement of debt is indicated in unsecured loans when no guarantee or security is provided for the money borrowed.

However in secured loans such as auto, home, gold and other such loans where a commodity is placed as security, this type of settlement is impossible.

Settlement benefits 

The loan settlement is a beneficial situation for the debtor as well as the creditor. For the debtor, the elaborate court tribunals and trials are avoided.  Further the debtor need to only pay a smaller amount when compared to the actual amount borrowed.

For the creditor, the amount agreed upon   will at least provide him with a considerable amount of money that the debtor can pay without resorting to bankruptcy which can eliminate all chances of getting back even the reduced amount of money.

Steps in loan settlement

Once you decide on going for the debt settlement, the first step is to decide on how you want to approach the creditor about the settlement, that is, opt between using a loan settlement expert or doing it yourself.

Most debtors avoid using a debt settlement service as they need to pay some amount as fees for the service and most importantly the debtors  on their own will serve as better negotiators than a professional.

Negotiation tips

You need to make the creditor understand the dire situation you are in for the settlement to be agreed upon. Your situation should force the creditor to accept the settlement on the fear of not getting any amount at all.

Before you go for the negotiation, reduce your credit card expenses for a minimum of six months before the request.

List all the bills you have in priority order. Before you agree upon an amount to settle, ensure that you have enough cash left over for the essential bills and necessities.

You should prove to the creditor that the amount mentioned is the maximum you can arrange for the settlement before that amount dwindles too.

When you stress on the fact that you possess multiple accounts and that the funds may be used to settle other accounts, your creditor will accept your deal readily.

Repayment of 30% of the pending amount is advisable. Since the creditor would negotiate for a higher amount, you can adjust the amount but make sure you don’t agree to an amount over 50% of the total amount. If the creditor does not agree to the amount, use it to pay for any other creditor you have instead.

Written proof

Once the creditor agrees for the settlement, ensure the creditor gives a written approval for proof. Also ensure that the paid amount is marked as full settlement of debt. This would save you future hassles in the event of the creditor approaching a collection service for the debt.

With a proper debt settlement, it is possible to eliminate the fees and interests that had mounted on the outstanding debt. The fees on over limit would also be reduced. You can relax and focus on the other dues and financial commitments.

Jay Kaul

About Jay Kaul

Jay is a financial and credit expert and freelance contributor to CreditSmart. He's always keeping his eyes open for the latest credit card trends in India and provides a sharp insight on new entries into the market.

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