When it comes to paying off your loans, terms like loan settlement and loan closure often come up, but they mean different things. Knowing the difference can help you make smarter financial decisions and protect your credit score.
Vizzve Finance explains everything you need to know about these two important loan repayment options.
What is Loan Closure?
Loan closure means you have fully repaid the entire loan amount along with all interest and charges as per the original loan agreement. Once you close the loan:
You receive a No Objection Certificate (NOC) or closure letter.
Your loan account is marked as “closed” and no further dues remain.
It positively impacts your credit report by showing timely repayment.
What is Loan Settlement?
Loan settlement happens when you pay less than the total outstanding amount to the lender to clear your loan. This usually happens when:
You negotiate with the lender for a one-time lump-sum payment lower than the total dues.
It often occurs when borrowers face financial difficulties.
The lender accepts the reduced amount as full and final settlement.
Key Differences Between Loan Settlement and Loan Closure
| Aspect | Loan Closure | Loan Settlement |
|---|---|---|
| Amount Paid | Full amount including interest and charges | Less than the total outstanding amount |
| Credit Impact | Positive — shows full repayment | Negative — marked as “settled” or “written off” |
| No Dues Certificate | Yes, with full repayment | Yes, but may be marked as partial payment |
| Financial Implication | You pay the full loan cost | You save money upfront but may affect future loans |
| Eligibility | Anyone who completes full repayment | Typically for borrowers struggling financially |
Pros and Cons
Loan Closure Pros:
Maintains a good credit score.
Clears your debt fully.
Opens better future borrowing options.
Loan Closure Cons:
Requires paying the entire outstanding balance.
Loan Settlement Pros:
Provides relief if you’re unable to pay full dues.
Reduces your financial burden upfront.
Loan Settlement Cons:
Negative impact on credit score.
May affect eligibility for future loans.
Possible tax implications on waived amount.
When to Choose Loan Closure vs. Loan Settlement?
Opt for loan closure if you can repay fully on time or through prepayments.
Consider loan settlement only if you face genuine financial hardships and can negotiate effectively.
How Vizzve Finance Can Help
At Vizzve Finance, we guide you through loan repayment options tailored to your financial situation. Our experts help you plan for full repayment or negotiate settlements responsibly to safeguard your credit health.
FAQs
Q1. Will loan settlement affect my credit score?
Yes, loan settlement is recorded as a partial repayment and can lower your credit score.
Q2. Can I get a No Objection Certificate after loan settlement?
Yes, but the loan status will indicate it was settled, not fully closed.
Q3. Can loan closure improve my credit score?
Yes, full repayment positively impacts your credit history.
Q4. Are there tax implications in loan settlement?
The waived amount may be treated as income and taxable in some cases.
Published on : 10th August
Published by : SMITA
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