Finance

Debt Relief and Its Impact on Credit Score

When you pay all your EMIs on time, the information will be sent to credit bureaus, which will raise cibil score. If you’re unable to make repayments on time because of genuine reasons, you can request debt relief from the lender, but in India, it is not so easy to get debt relief.

Debt Resolution India: What does it mean?

Debt relief is a situation when you are unable to make repayments on time due to any financial uncertainties or other reasons. It involves negotiating with the lenders for a one-time settlement for an amount that is less than what you owe.

You need to inform the creditor about your existing situation, and request them to give some time for repayments.

Yes, debt relief is possible because something is always better than nothing, If your reason is genuine, it’s up to the creditor to settle your debt or not.

After a one-time loan settlement, the status of your complete outstanding loan will be marked as settled in the credit report.

Pros and Cons of Debt Resolution India

It seems that debt relief only has advantages from the borrower’s point of view. But it is not true like any other thing it has also pros and cons from both points of view. Let’s discuss

Advantages of Debt Relief

·       Your owed amount gets invisible from lender’s books. Settled mark on your credit report.

·       The interest and fees on the outstanding amounts will be not charged.

·       Once you joined the debt relief program limit fees will also go down.

·       It is one of the biggest burdens on you, you will feel relaxed.

Disadvantages of Debt Relief

·       Credit score will decrease it will create a negative impact; only go for this option when required seriously.

·       Will pay taxes on the waived amount by the lenders.

·       Creditors may or may not negotiate.

·       You have to pay more debt at last because all previous interest rates and fees are included in it.

·       You will have to pay additional fees to settle the debt.

Debt Settlement Impact on Credit Score

Lenders immediately inform the case to CIBIL rating agencies for writing off the debt. These agencies give remarks on transaction as settled; this remark shows negative credit history from the lender’s point of view.

This remark holds with the agencies for seven years. If the borrower wants loans during this tenure, there are high chances of application rejection. There is less chance for raise cibil score.

Things to remember

1.    Always borrow as per your requirement. You will not find any difficulty in repayment.

2.    Show all your proofs for debt settlement because lenders provided one-time settlements only when they are sure of your inability to pay the complete amount. Try to close the transaction as soon as possible to stop your gradually decreasing credit score.

3.    Once settled word remarked on your report. It would be quite difficult to get an instant loan in the future.

Try to settle the debt by yourself instead of taking help from another third party, you can negotiate better with your lender.

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