Over-borrowing is bad, what’s worse is going for the settlement option

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Over-borrowing is bad, what’s worse is going for the settlement option


  • The interest outgo on any credit card debt or unsecured loan will increase if you delay the payments of bills or EMIs
  •  Non-payment or even part payment or one-time settlement will also hit your credit score
It is that time of the year when you find neighborhood markets, malls and e-commerce websites full of offers and deals across products. Even banks and financial institutions are offering easy and instant financing schemes with zero processing fees and low-interest rates. Before you get swept in by the festive euphoria and end up taking credit, remember that taking too much debt through unsecured loans can create problems for you if you are unable to pay up on time.

To start with, the interest outgo on any credit card debt or unsecured loan will increase substantially if you delay the payments of bills or EMIs.

Loans and credit scores share a positive correlation: the higher the credit score, the higher the chances you have to avail of a loan and negotiate the interest rate on that loan. A good credit score also enhances your loan amount eligibility.

Remember that your credit score is directly dependent on your repayment history: delay or default in paying of dues may impact your credit score negatively. Poor credit scores can also lead to the closure of a fresh line of credit.

Banks and financial institutions report or share details of borrowings and repayments made by borrowers with credit rating companies. The credit score is developed on the basis of such information.

Settling a loan : 

Sometimes you don’t have an option apart from settling a loan. If you find yourself in such a situation, make sure you don’t fall for fraudulent practices. “Make sure that final settlement offer comes from the lender rather than an intermediary of the lender

A lot of lenders have collection agents, who have big targets to achieve and their incentives or paycheques are linked to the number and volume of the collection. In many cases, to achieve their targets, these collection agents or intermediaries offer a small fraction of the outstanding loan as the settlement amount. In truth, they pay this money towards the EMI, because the target for recovery agents is to recover EMI payments. 

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