Did you know that, according to the Financial Stability Report for June 2024, Non-Performing Assets (NPAs) for housing loans stood at 1.1%?  This number highlights the small but significant number of borrowers who face challenges in home loan repayment.

If you find yourself in a similar situation, home credit loan settlement might be an option worth considering. This process allows borrowers to negotiate with lenders to pay a reduced lump sum amount.

In this article, we will provide a step-by-step guide to home credit loan settlement, share tips to ensure a smooth process, and discuss its potential impact on your credit score.

Step-by-Step Guide for Home Credit Loan Settlement Process

Here’s how you can avail of home credit loan settlement to reduce your immediate debt burden:

Step 1: Evaluate Your Finances

You should opt for home credit loan settlement only if it is the best option for your financial situation. Consider alternatives like loan restructuring and EMI adjustments that can also help you manage your repayments. If you determine that home loan credit settlement is the right choice, proceed to Step 2.

Step 2: Contact Your Lender

Reach out to your lending firm and explain your need for a home credit loan settlement. Many reputable lenders are understanding of circumstances beyond your control, such as medical emergencies or unexpected job loss, that can prevent timely repayments. Ensure you have all relevant documents ready, including your loan account details, outstanding amount, and proof of financial hardship.

Step 3: Negotiate the Settlement Amount

Discuss a feasible lump sum payment that you can afford for the home loan credit settlement. Ideally, this amount should be lower than your outstanding balance.

Step 4: Draft the Contract

Once your lender agrees to the settlement amount, ensure that a contract is created that clearly outlines all terms and conditions. This should include the agreed amount, due date, and any other relevant stipulations.

Step 5: Process the Payment

Pay the agreed-upon amount before the due date and keep proof of transaction as evidence of settlement.

Step 6: Request a No-Dues Certificate

After the payment has been processed, request a no-dues certificate from your lender. This document serves as official proof that there is no outstanding balance in your name.

Tips for a Smooth Home Credit Loan Settlement Process

The following tips for the home credit loan settlement process will help you avoid any complications:

• Record Every Communication: Keep detailed records of all correspondence related to your loan settlement. Store emails, letters, and call logs carefully, as they can be helpful for future reference.
• Negotiate Firmly: While your proposed home credit loan settlement amount should be realistic, aim for a figure that is also low and affordable for you.
• Be Honest: Be transparent with your lending company about the reasons you are unable to repay your home loan. This honesty can help prevent complications or misunderstandings later in the process.
• Check Your Credit Report: Once the home credit loan settlement process is complete, thoroughly check your credit report. This will help you identify any errors or discrepancies related to your settled dues early on.

Home Credit Loan Settlement Impact on Your Credit Score?

A home credit loan settlement signifies that a borrower has been unable to repay the loan in full, which negatively affects their credit score. When a loan is settled, lenders typically mark the account as “Settled” rather than “Closed.”
A “Settled” status can lower your creditworthiness and remain on your credit report for up to 7 years, making it harder to obtain future loans with favourable terms.
However, for those facing financial difficulties, choosing to settle instead of defaulting can be a better option. Settling demonstrates a willingness to repay part of the debt, which may be viewed more favourably by lenders compared to defaulting.

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Conclusion

While a home credit loan settlement can provide immediate relief, it may also impact your credit health in the long term. That’s why it’s essential to approach the home credit loan settlement process thoughtfully and make informed financial decisions.

If you’re exploring affordable home loan options, SMFG Grihashakti can help. We offer loans of up to INR 1 crore* or up to 90%* of your property’s value, with interest rates starting at just 10%* per annum. With flexible loan tenures of up to 30 years, the monthly payments can be aligned with your financial capacity, making homeownership more manageable. Use our home loan EMI calculator to estimate your monthly outflow and apply online today!