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Get a Full and Final Settlement with your Creditors

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Are you unable to pay your creditors back due to financial difficulties? This is a situation that a lot of people face at some point. You would know how much stress it can put on a person if you have gone through this. And, you would want some kind of relief, preferably a way to write off the amount that you owe. In that case, you don’t have to worry at all, as there are many options available to you, and a full and final settlement is easily one of the simplest ones among them. It can be a viable option under some circumstances. So, there are specific details that you need to know to be able to come to a clear decision.

How does this work?

Let’s assume you have taken a certain amount of money as a loan from a bank or finance company. They would charge a specific amount of interest each month on the principal. Now, due to financial problems, you are unable to pay regularly. This might incur you more charges for late repayment, based on the terms you had agreed upon. 

In that case, it’ll become harder for you to free yourself from the debt. So, you’re in a tight situation and would look for a way out. On the other hand, the lenders would be facing losses due to not being repaid. As a result, they might want at least a part of the money. In this situation, you can offer them a part of what you originally had to return them. In return for that, they would have to give a written statement that you don’t have to pay them anymore. This arrangement is named a full and final settlement in short.

Now, it’s not as simple as it might seem, and there are many aspects that you must consider. Also, it’s not always the best option that you’ve got. Moreover, you can proceed with this arrangement only if the lenders give their consent. So, you would have to convince them that this is a good option, which can be quite difficult in some cases. If done right, it’ll only be a matter of time before you’re relieved from the debt.

How do you request it?

When you miss instalments, you’ll start receiving reminders. They would contain the details of how much you owe and additional charges you have to pay if any. Similarly, to get a full and final settlement, you have to write to them and make them an offer. You have to mention all the details of the arrangement that you want with them. Also, you have to make it as convincing as possible. Otherwise, if they think there are other ways to recover the money, they will follow that. This includes taking you to court, though not before they’ve tried all other methods.

In case you didn’t know, the creditor can also offer this arrangement to you themselves. So, this option is available for both sides. If you face this situation, you must go through their offer letter carefully, multiple times if needed. Make sure that they have agreed to write off the debt after you pay the amount they’re asking for. Also, you must keep in mind to send money only after they’ve accepted your offer.

How much should you offer them?

This question would probably be one of the first ones to come to your mind. There is no fixed amount that you are required to offer to them. The entire arrangement depends on the terms set between you and your creditors. However, there certainly is a right amount that you need to offer them. After all, they’re not going to accept just anything you offer them. Also, they generally do have other options to recover the money. So, you must assume that you’ll have to give them a suitable amount to make them accept the offer. 

It depends quite a lot on your situation. Suppose you’re going through a financial situation where you won’t be able to pay the full amount by any means. On top of that, you also don’t have any property for selling, for which you can clear the full debt. They might be convinced that they should accept your offer in such cases. After all, it’s better to recover some of the money rather than getting none at all.

However, you must offer more than 50% of the amount in other circumstances. You must keep it as high as possible above this percentage. Then, there might be a good chance that they accept your offer.

How do you ensure that your offer is accepted?

As we have seen, there aren’t any fixed ways to get a positive result for this arrangement. So, you must work it out in a way that ensures your success. Further, the offer you make and the details you give plays a crucial role. Apart from the amount, you must also add the details of earnings and expenditure. That would make them understand your situation much better, and they would be more convinced of your hardship. 

Now, they might wonder where you’ll get the money that you offered them. After all, they would want to be sure that you’ll be able to pay them at least the sum. To clear their doubts, you can specify where you’ve got the money, such as from your pension or a relative or friend. If you come across a windfall amount, such as by winning a lottery or getting an inheritance, you can use that to pay as well. Whatever be the case, you must mention the source to make things clear.

In what situations can you opt for it?

You can’t get a full and final settlement at just any time you want it. You should have crossed the default date of the loan. Only after that can you offer a lump sum to your creditor. So, you can’t apply for it if you have missed just one or two monthly payments. In those cases, you would have to look for other arrangements.

Does this arrangement affect your credit score?

When you take a loan, the lenders always ask to have a look into your credit file, and it is very useful information for them. After all, it helps them know about how you have dealt with past credits. They take into account various aspects of your credit history and give you scores based on that. Based on that, they’ll decide whether to lend you any money and the interest they should charge. The lower the score is, the harder it’ll be to get a loan at a good rate. If it’s too low, nobody except maybe a handful of lenders would agree to lend you.

Non-payment of debts will damage your credit rating. So, you might wonder what happens if you settle it by paying a partial amount. In such cases, your rating would still be affected. However, it won’t be as much damage caused as it can be by bankruptcy or insolvency. So, this is something that you must consider before you go for a full and final settlement. You might have to wait for six years before you’ll be able to take another loan at a favourable interest. Until then, the current debt will be written as being partially settled in your credit file.

What happens when you have many people to repay?

You might be wondering whether you can use this in the case of many repayments — in that case, you must know that you can indeed do so. However, things work a little differently in this case, you have to decide the percentage very carefully. That’s because you have to offer the same to all of the people that have lent you credit. What if you already have a DMP?

You might already have signed an arrangement to clear your debts to various creditors. Now, suppose you see that you won’t be able to pay the full amount you owe; therefore you want to pay a lump sum to write it off. If you’re wondering, it is indeed possible to do so in such cases. You can offer a lump sum to your creditor while you are still in a debt management plan. Not only that, but you can also make the same offers to the other creditors in your DMP as well.

What are the drawbacks of this arrangement?

To make sure that you make the right decision, you must take into account all the cons of this arrangement. The biggest one among them is that the creditor may not accept your offer. As a result, you’d be required to read their mind to be able to convince them. 

Apart from that, it also damages your credit rating to some extent. So, go for this arrangement only after careful consideration. Make sure that there are more benefits than risks in your case.