“How to Properly Close a Settled Loan: Avoid Mistakes That Can Affect Your Credit for 7 Years”
Many borrowers mistakenly believe that settling a loan is the same as closing it. While loan settlement and closure may sound similar, the impact on your credit report and future borrowing can be drastically different if the process is not completed correctly. Improper closure of a settled loan can affect your CIBIL score for up to 7 years, making it difficult to take out new loans.Difference Between Loan Settlement and Loan ClosureAspectLoan SettlementLoan ClosureMeaningPaying less than the total outstanding to clear the loanPaying the full outstanding amount, including interest and chargesCredit Report ImpactMarked as “Settled” or “Partially Paid,” which may affect creditworthinessMarked as “Closed” or “Paid in Full,” which improves credit historyFuture LoansLenders may view it as a default or partial repaymentShows you are a responsible borrowerWhy Settled Loans Can Affect Future Borrowing1. CIBIL Report Records “Settled” Loanso Settled loans are visible on your CIBIL or credit report for up to 7 years.o Other lenders may consider it a negative mark, reducing your chances of approval.2. Higher Interest or Rejectiono If you apply for a new loan, banks may charge higher interest rates or reject the application outright.3. Impact on Credit Scoreo Settling a loan instead of closing it properly can lower your credit score, affecting future borrowing.Steps to Properly Close a Settled Loan1️⃣ Obtain a Settlement Certificate· Ensure the bank provides a settlement letter stating the final amount paid and loan cleared.2️⃣ Verify Your CIBIL/CRIF Report· Check your credit report after settlement to ensure the loan is recorded correctly.3️⃣ Request Loan Closure Statement· After paying the settlement amount, ask the bank to update your loan status to “Closed” in the system.4️⃣ Follow Up with Credit Bureaus· If your report still shows a negative mark, contact CIBIL, Experian, or Equifax with the settlement documents to correct the record.5️⃣ Keep All Documentation· Retain settlement letters, loan statements, and closure certificates for future reference.Important Tips· Always read the fine print before settling a loan.· Try to pay off loans in full whenever possible to maintain a healthy credit score.· Check your credit report regularly to ensure accurate updates.ConclusionLoan settlement is not the same as loan closure, and ignoring this distinction can hurt your credit score for up to 7 years. Properly closing a settled loan ensures your CIBIL report reflects responsible borrowing, improving your chances of obtaining new loans and credit facilities in the future. Disclaimer:The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.