Many people enter into a ‘settlement’ with the bank when they are unable to repay the entire loan. While this may seem to end the financial burden at the time, it can cause problems in the future when they need a new loan or credit card. Banks may reject their applications. What is the difference between ‘settled’ and ‘closed’ status? When a customer repays the entire loan amount, including interest, the bank marks the account as ‘closed’. This means the customer has fully met their obligation. On the other hand, when a customer is unable to repay the entire loan and the bank agrees to close the account for an amount lower than the outstanding principal, it is marked as ‘settled’. In simple terms, settlement means that the bank has resolved the matter while accepting the loss it incurred. How does it affect a new loan application? Whenever you apply for a new loan or credit card in the future, banks first check the ‘Account Information’ section of your credit report. If an old loan is marked as ‘Settled’ there, banks consider you a ‘high-risk’ customer. Your CIBIL score also remains low because of the settled status. Banks believe that a customer who did not make full repayment in the past may do the same again. As a result, applications for home loans or personal loans are rejected immediately. Understand how this works with an example Suppose a person took a ₹5 lakh personal loan for a trip to Europe. They paid the EMIs on time for some time but later, for some reason, were unable to repay the remaining ₹3 lakh. After discussions, the bank agreed to close the loan through a settlement of ₹1.5 lakh. The customer thought their liability had ended, but when they applied for a home loan a few years later, their application was rejected. The reason was the ‘Settled’ status recorded in their CIBIL report. How can ‘Settled’ be changed to ‘Closed’? If your financial situation has improved and you want to improve your credit profile, follow these steps: Post navigation Japan’s interest rate at its highest in 31 years:Central bank raises rates from 1% to 1.25% in bid to tackle inflation and falling yen Moody’s raises India’s GDP growth forecast for FY27 to 7%:Higher than IMF RBI estimates; economy remains strong despite West Asia tensions
