Winning Bizness Desk
Mumbai.What does ‘Settled’ status mean in CIBIL report? Know why it differs from ‘Closed’
Many borrowers choose to settle a loan when they are unable to repay the entire outstanding amount. While a settlement can provide immediate relief from a financial burden, it can affect a person’s ability to borrow money in the future. Banks may view a settled account negatively when assessing applications for new loans or credit cards.
A settled account can remain an important factor in a borrower’s credit history. This is why it is important to understand the difference between a loan being marked ‘Closed’ and one being marked ‘Settled’.
‘Closed’ means full repayment, ‘Settled’ means partial payment
When a borrower repays the entire loan amount, including applicable interest and dues, the bank marks the account as ‘Closed’. This indicates that the borrower has fully met the repayment obligation.
A ‘Settled’ status is different. It is recorded when the borrower cannot repay the full outstanding amount and the bank agrees to close the account after accepting an amount lower than the outstanding principal.
In simple terms, the bank resolves the loan account after accepting a financial loss on the amount that was not recovered.
Why settled accounts can affect future borrowing
When a person applies for a fresh loan or credit card, banks examine the ‘Account Information’ section of their credit report. A previous ‘Settled’ status can raise concerns about the borrower’s repayment history.
The settled status can also affect the borrower’s CIBIL score. Lenders may consider such customers to be higher-risk borrowers because the previous loan was not repaid in full. This can make it difficult to obtain products such as home loans or personal loans.
A ₹5 lakh loan settlement can create trouble later
For example, suppose a person takes a ₹5 lakh personal loan for a trip to Europe and initially pays the EMIs regularly. Later, the borrower is unable to repay the remaining ₹3 lakh.
After discussions, the bank agrees to settle the account for ₹1.5 lakh. The borrower pays the agreed amount and believes the liability has ended.
However, when the person applies for a home loan a few years later, the lender sees the old ‘Settled’ status in the CIBIL report. This could become a reason for the application to be rejected.
Borrowers can seek correction after clearing dues
If the borrower’s financial position improves, there is a way to seek a change from ‘Settled’ to ‘Closed’. The first step is to approach the bank where the old loan was settled.
The borrower can:
- Pay the amount that had been waived during the settlement.
- Obtain a No Dues Certificate or NOC from the bank after making the payment.
The NOC serves as proof that the borrower has cleared the remaining dues and has no outstanding liability with the bank.
CIBIL can update the status after bank verification
After obtaining the NOC, the borrower can file a complaint through CIBIL’s official website and provide the relevant details and documents.
CIBIL then contacts the concerned bank to verify the information. If the bank confirms that the remaining amount has been paid, the credit report can be updated.
The process may take up to 30 days after verification. Once the bank provides confirmation, the ‘Settled’ status can be replaced with ‘Closed’, helping reflect that the borrower has subsequently cleared the full amount due.
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