Business
The Real Difference Between Loan Closure And Settlement That Banks Don’t Explain
Last Updated:
During repayment, two terms often confuse borrowers — loan closure and loan settlement. Both sound like the same thing: paying off the loan. But they’re not.
The impact is long-term. Your credit score takes a significant hit, and banks classify you as a risky borrower (Image: Canva)
In today’s world, loans have become part of life — whether it’s buying a house, a car, funding education, or even managing a wedding. Getting a loan feels easy and rewarding when the amount hits your account, but the real challenge begins when the monthly EMI cycle starts. Most people plan extensively before taking a loan, but not nearly enough when it comes to repaying it smartly.
During repayment, two terms often confuse borrowers — loan closure and loan settlement. Both sound like the same thing: paying off the loan. But they’re not. The difference between them can decide how healthy your credit score looks in the years to come.
What Loan Settlement Really Means
Imagine you take a loan of Rs 1 lakh but, due to financial strain, can’t keep up with your EMIs. You go to the bank and say, “I can’t pay the full amount. Take Rs 70,000 and close my loan.” The bank, realizing it might not get more, agrees and marks your account as settled.
You may feel relieved, but this settlement comes at a cost — your credit health. The bank writes off the remaining Rs 30,000, but your credit report (CIBIL) will clearly show the loan as settled, not closed. In the eyes of future lenders, this means you didn’t pay back what you owed in full.
The impact is long-term. Your credit score takes a significant hit, and banks classify you as a risky borrower. The next time you apply for a home loan or car loan, lenders may hesitate or approve it at a much higher interest rate. What looked like a quick fix can become a financial roadblock for years.
What Proper Loan Closure Looks Like
Loan closure is the clean way out. It simply means you repay every rupee you borrowed — the principal plus all the interest — till the end of your loan term. You can do this by continuing your regular EMIs until the loan tenure ends, or by prepaying the outstanding balance early (called foreclosure). Either way, the bank will mark your account as closed once you’ve cleared everything.
After the loan is closed, the bank issues a No Objection Certificate (NOC) or Loan Closure Letter. This document is proof that you’ve fulfilled your repayment responsibility. When lenders see a closed loan in your credit report, they recognize you as a disciplined, low-risk borrower. Your credit score improves, and future loans become easier and cheaper to access.
The Long-Term Difference Between the Two
The short-term benefit of a settlement (paying less) is quickly overshadowed by its long-term damage. In contrast, a closure might feel tougher in the moment but rewards you in the long run.
| Aspect | Loan Settlement | Loan Closure |
| What happens | Partial payment accepted by bank | Full repayment of loan and interest |
| Credit Report | Marked as “Settled” | Marked as “Closed” |
| Effect on Credit Score | Sharp drop (negative impact) | Positive impact |
| Future Loans | Difficult to get or higher interest | Easier, lower interest |
| Documents | None or settlement letter | NOC or closure certificate |
What You Should Do if You Can’t Pay
If your finances are tight, don’t rush to request a settlement. That’s like putting a permanent dent in your financial credibility. Instead, approach your bank and ask about loan restructuring.
Many banks offer flexible repayment plans — extending your tenure, reducing EMIs, or offering short-term relief until your income stabilizes. This way, your credit score remains protected.
You can also consider using your savings, investments, or even selling idle assets to repay your loan completely. Once you clear the full amount, your credit profile becomes stronger, not weaker.
Why It Matters More Than You Think
Your credit score isn’t just about loans — it’s your financial identity. A single “settled” loan entry can affect your chances of getting credit cards, housing finance, or even business funding. On the other hand, a “closed” loan builds trust with banks and signals that you’re financially responsible.
It’s easy to get tempted by shortcuts when the EMI burden feels heavy. But remember, financial decisions made in crisis can echo for years. The smarter move is to plan ahead, restructure wisely, and aim for closure — not settlement.
The News Desk is a team of passionate editors and writers who break and analyse the most important events unfolding in India and abroad. From live updates to exclusive reports to in-depth explainers, the Desk d…Read More
The News Desk is a team of passionate editors and writers who break and analyse the most important events unfolding in India and abroad. From live updates to exclusive reports to in-depth explainers, the Desk d… Read More
October 31, 2025, 11:03 IST
Stay Ahead, Read Faster
Scan the QR code to download the News18 app and enjoy a seamless news experience anytime, anywhere.
Diminishing perspective of downtown London skyscrapers
Chunyip Wong | Istock | Getty Images
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox.
The commercial real estate market has been historically slow to modernize, and yet it appears to be accelerating its adoption of artificial intelligence.
Companies are moving beyond initial testing and exploration into more targeted applications that aim to redefine value, according to a new survey from JLL.
The survey of more than 1,500 senior CRE investor and occupier decision-makers across various industries found that, while still in the early stages, organizations are making AI a priority in their technology budgets. They are also moving from using it just for efficiency to focusing on how it can grow their businesses.
JLL found that 88% of investors, owners and landlords said they have started piloting AI, with most pursuing an average of five use cases simultaneously. And more than 90% of occupiers are running corporate real estate AI pilots, according to the report. Compare that with just 5% starting AI pilots two years ago. The adoption is fast, but not entirely easy.
Just 5% of respondents said they have achieved all their program goals, while close to half said they have achieved two to three goals. Much of the efforts are still experimental, without much growth.
“If you think about commercial real estate, traditionally, it is not a quick technology adopter, and it’s usually skeptical,” said Yao Morin, chief technology officer at JLL. “So the high number of adoptions is actually quite surprising to me. What is not surprising on the flip side is that only 5% actually thinks that they have achieved all the goals. This is pretty aligned with a lot of other industries as well.”
The reason they’re not hitting their goals is because the goal line has moved. Companies have gone beyond just wanting to do certain tasks faster, or so-called operational efficiencies. Now they are tying AI to their revenue goals.
For example, some are using it to help them improve their investment risk models, making investment and portfolio decisions based on the output of AI. That will require big changes to the fundamental way they operate.
“When you really start moving towards the revenue side, the margin expansion side, then it’s going to require a lot more than just using a technology,” Morin explained. “You can’t just say, ‘Well, I’m saving you 10% to do this particular thing.’ Companies need to actually rethink their operating model, to rethink how they organize to actually achieve the savings.”
And so companies are investing heavily in AI, despite economic headwinds. More than half of investors surveyed by JLL have been able to get significant budget growth over the past two years in the space. Their No. 1 spend is on strategic advisory on technology or AI, and most report their budgets have increased solely due to AI. After that, the spending goes to upgrading both cyber- and data-security measures and infrastructure for AI integration.
Morin said what she found really surprising is that while most think companies will start using AI for simple tasks, or, low-risk, low-hanging fruit, that was not at all the case.
“Our survey showed the opposite. We are getting to a point of sophistication, beyond this initial skeptical phase, where companies are really focusing on the competitive advantage to pressing business problems, using AI to solve instead of [just] those simple low-risk operations.”
TT Electronics has accused shareholder DBay Advisors of having a “different agenda” in its decision not to back the British manufacturer’s planned £287 million takeover.
On Thursday, Woking-based TT Electronics said it had agreed a takeover approach by Swiss rival Cicor Technologies.
But soon after, its major investor DBay – which has a stake of around 16.5% – revealed it would vote against the 155p-a-share takeover, claiming it was “happy with the progress” TT Electronics is making and therefore would not be backing the sale.
TT Electronics revealed on Friday that DBay had made three takeover approaches for the firm in the past three months.
The most recent was made on October 7 at 130p a share.
“Each of these proposals was unanimously rejected by the TT board,” TT said.
It added: “Against this background, the board of TT believes that DBay may in some respects have a different agenda to other TT shareholders.
“The board of TT remains focused on delivering maximum value for all shareholders and believes the Cicor offer is the best route to achieving this objective.”
Shares in TT were 1% lower in early morning trading on Friday.
Tinned tuna maker Princes Group has kicked off its major London stock market float with a £1.16 billion valuation.
The almost 150-year-old firm, which is best known for its Princes Tuna and Napolina brands, will therefore be valued at the bottom end of a £1.16 billion to £1.24 billion target range set out last week.
Princes said conditional dealings being launched on Friday would see shares in the business priced at 475p per share.
The company, which has headquarters in Liverpool’s landmark Liver Building, was bought last year by Italian food firm Newlat, which will keep an investment in the business.
The float is the latest in a fresh flurry of activity for the London Stock Exchange after a dearth of listings in recent years.
It comes only a day after small business lender Shawbrook Group launched its initial public offering (IPO) at a £1.92 billion valuation.
It then saw shares rise by around 8% in its first day of trading.
Meanwhile, The Beauty Tech Group – which owns beauty gadget brands CurrentBody, ZIIP Beauty and Tria Laser – floated with a valuation of around £300 million earlier this month.
Princes, which also owns Crisp N Dry and licenses brands such as Branston, said it will raise around £400 million through its listing.
The food firm said the cash injection will help support the company to grow further through acquisition deals.
Simon Harrison, chief executive of Princes Group, said: “Today marks a defining moment in Princes Group’s journey as we proudly begin our chapter as a publicly listed company.
“Our listing on the London Stock Exchange reflects not only our heritage but also our ambition for future growth.
“As we look ahead, we remain focused on expanding our international footprint, deepening our category leadership, and delivering sustainable, long-term value for all our stakeholders.”
Business and Trade Secretary Peter Kyle said: “The London Stock Exchange is a renowned global trading hub and the Princes Group is a great British success story.
“The firm’s decision to list is not only a huge vote of confidence in this Government’s reforms to capital markets but in British business.”
Just 5% of CRE companies have achieved their AI goals. Here’s why
Madrid’s Alonso on Vini furore: ‘Subject closed’
Why It’s Specially Designed for Women
-
Politics6 days agoTrump slams ‘dirty’ Canada despite withdrawal of Reagan ad
-
Tech7 days agoDefect passivation strategy sets new performance benchmark for Sb₂S₃ solar cells
-
Business1 week agoJLR shutdown after cyber hack drives slump in UK car production
-
Tech1 week agoTurning pollution into clean fuel with stable methane production from carbon dioxide
-
Sports7 days agoAlleged mob ties in NBA scandal recall La Cosa Nostra’s long shadow over sports
-
Business1 week agoAssaults on rail network more than triple in 10 years
-
Sports1 week agoNBA legend Chauncey Billups, Heat’s Terry Rozier arrested as part of FBI gambling probe
-
Sports1 week agoBig news for sports fans in Pakistan! Geo Super to air global sports events live