Business
The Real Difference Between Loan Closure And Settlement That Banks Don’t Explain
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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
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The government is facing questions over whether the system at the heart of its plans for digital ID can be trusted to keep people’s personal data secure.
Digital ID will be made available to all UK citizens and legal residents but will only be mandatory for employment, under the government’s proposals.
Full details of how the system will work have yet to be announced but Prime Minister Sir Keir Starmer has insisted it “will have security at its core”.
It will be based on two government-built systems – Gov.uk One Login and Gov.uk Wallet.
One Login is a single account for accessing public services online, which the government says more than 12 million people have already signed up to.
By this time next year that might be as many as 20 million, as people registering as company directors will have to verify their identity through One Login from 18 November.
Gov.UK Wallet has not yet been launched but it could eventually allow citizens to store their digital ID – including name, date of birth, nationality and residence status, and a photo – on their smartphones.
Users will need a Gov.UK One Login to access the wallet.
Last month, the government launched a digital identity card for military veterans to test the concept.
The government hopes to avoid security issues by keeping the personal details to be accessed through One Login in individual government departments rather than in a single, centralised database.
But veteran civil liberties campaigner and Conservative MP David Davis has raised concerns about potential flaws in the design and implementation of One Login that he says could leave it – and the new digital ID scheme – vulnerable to hackers.
Speaking in a Westminster Hall debate earlier this month, he said: “What will happen when this system comes into effect is that the entire population’s entire data will be open to malevolent actors – foreign nations, ransomware criminals, malevolent hackers and even their own personal or political enemies.
“As a result, this will be worse than the Horizon [Post Office] scandal.”
Davis has written to spending watchdog the National Audit Office calling for an “urgent” investigation into the cost of One Login, which he says is certain to rise above the £305m already earmarked for it.
In his letter, the MP highlights a 2022 incident, in which it was found that the One Login system was being developed on unsecured workstations by contractors without the required security clearance in Romania.
Davis also points out that One Login does not meet the government’s own requirements to be classified as a safe and trusted identity supplier.
The government has blamed a supplier for allowing its Digital Identity and Attributes Trust Framework certification to lapse earlier this year and says it is working towards it being restored, which will happen “imminently”.
Separately, Liberal Democrat technology spokesman Lord Clement-Jones has questioned whether One Login meets National Cyber Security Centre standards.
The peer says he has been speaking to a whistleblower, who claims that the government has missed the 2025 deadline set out in its national cyber security strategy for hardening “critical” systems against cyber attacks.
Ministers deny this but the Lib Dem peer said he had been told by an official that One Login would not pass the required security tests until March 2026.
The whistleblower also highlighted an incident from March this year, when a so-called “red team” tasked with simulating a real life cyber attack was reportedly able to gain privileged access to One Login systems.
The Department for Science, Innovation and Technology (DSIT) says it is unable to give details of the red team exercise for security reasons but says claims that its systems were penetrated without detection are false.
DSIT officials also assured Lord Clement-Jones that the subcontractors in Romania were “a handful of people” none of whom had access to production “and all code was checked”.
The department says all members of the team working on One Login use “corporately managed” devices which are monitored by a security team to detect any malicious activity.
But Lord Clement-Jones told the BBC he was not convinced by the department’s assurances.
He said the track record of successive governments of running One Login and other systems “should give us all no confidence at all that the new compulsory digital ID, which will be based on them, will ensure that our personal data is safe and will meet the highest cybersecurity standards”.
Last week, the prime minister handed overall control of the digital ID scheme to the Cabinet Office, which is headed by one of his most trusted and senior ministers Darren Jones, reflecting its importance to the government.
But the Government Digital Service, which is part of DSIT, will retain responsibility for design of the project.
A DSIT spokesperson said: “Gov.UK One Login continues to deliver for citizens across the UK.
“One Login is now home to more than 100 services and has been used by more than 12 million people – representing almost a sixth of the UK population.
“One Login follows the highest security standards used across government and the private sector and is fully compliant with UK data protection and privacy laws.
“The system undergoes regular security reviews and testing, including by independent third-parties, to ensure security remains strong and up to date.”
Drone view of damage to coastal homes after Hurricane Melissa made landfall, in Alligator Pond, Jamaica, Oct. 29, 2025.
Maria Alejandra Cardona | Reuters
Hurricane Melissa, the most powerful Atlantic hurricane of the year, made landfall this week as a Category 5 storm in Jamaica. The strength of the storm means it will likely trigger a full payout from a catastrophe bond designed to provide funds to the island in the event of catastrophic weather events.
The $150 million catastrophe bond, structured by Aon, is intended to help the island’s people rebuild after natural disasters by providing Jamaica parametric coverage against losses from named storms. The policy took effect this year and lasts through 2027.
The government of Jamaica is the first government in the Caribbean region, and the first of any small island state, to independently sponsor a cat bond, according to Aon. Its likely payout demonstrates the value of a unique type of backstop funded by the private markets.
In order to trigger the full payment, the storm has to meet a particular strength criteria. The central pressure of the storm must be at or below 900 millibars as its makes landfall and crosses the island nation.
Early data from the National Hurricane Center shows Hurricane Melissa’s pressure stayed below 900 millibars in several areas. Those readings are in the process of being verified by an independent calculation agent.
“While the final numbers are still being verified, the early signs suggest the transaction is doing what it was designed to do: getting critical funds to the country quickly after a major disaster,” Chris Lefferdink, Aon’s head of insurance-linked securities for North America, said in a statement.
The review process typically takes 2 to 3 weeks, and the earliest possible payout to Jamaica could come in approximately 1 month, according to a spokesperson from Aon.
A drone view shows an affected area after Hurricane Melissa made landfall, in Crane Road, Black River, Jamaica, October 30, 2025.
Maria Alejandra Cardona | Reuters
Previous parametric transactions payouts have taken 3 months or more, but for this event Aon used an innovative data source to enable faster payments.
The catastrophe bond was placed using the International Bank for Reconstruction and Development’s “capital at risk” program, which is used to transfer the risks associated with natural catastrophes to the capital markets, allowing the country to access funds quickly after a major event.
“What you have is a capital provider putting funds in the pool, an insurer putting the coupon for those funds in the pool [and] if the storm hits that criteria, they get the money in a much quicker fashion,” Aon CFO Edmund Reese told CNBC’s Contessa Brewer in an interview.
Damaged furniture and debris after Hurricane Melissa made landfall, in Black River, Jamaica, Oct. 30, 2025.
Octavio Jones | Reuters
Catastrophe bond and insurance-linked securities were created in the mid 1990s in the wake of Hurricane Andrew’s destruction. They’ve since grown in popularity, with the cat bond market growing by over 50% since the end of 2022 to nearly $55 billion.
“Public-private partnerships like Jamaica’s continue to highlight how parametric insurance can deliver rapid, transparent relief in the wake of severe storms,” Lefferdink said.
Jamaica very narrowly missed the requirements necessary to receive a payout from a separate cat bond when Hurricane Beryl battered the island in 2024, resulting in $995 million in damages to homes, crops and infrastructure, according to the National Hurricane Center.
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Residential prices in this area are presently in the range of Rs 10,000-12,000 per sq ft, making it almost 2.3 times more affordable than other premium micro-markets in Gurugram
Sector 63A, located along the Golf Course Extension Road, is home to projects like Anant Raj Estate by Anant Raj Limited.
The dream of owning a home in Gurugram has long been associated with soaring property prices and premium localities like Golf Course Road or Dwarka Expressway. However, a new report by global real estate consultancy Colliers has brought a fresh perspective; Sohna, once known as an affordable pocket on the city’s outskirts, has now outperformed Gurgaon’s most expensive corridors in terms of property price growth.
According to the Colliers report, Sohna Road has topped the list of the five fastest-growing micro-markets in Gurgaon. Property values in the region are projected to rise by nearly 1.6 times in the coming years, making it one of the most promising investment destinations in the National Capital Region (NCR).
The report highlights that Sohna commands the highest share of graded housing units, about 73% of the total in NCR. The micro-market is witnessing a steady rise in new residential supply, alongside regions such as Golf Course Road, Golf Course Extension Road, Southern Peripheral Road (SPR), and Dwarka Expressway.
Experts attribute Sohna’s rise to massive infrastructure developments in the region. The upcoming IMT Sohna industrial hub, enhanced connectivity through the Delhi-Mumbai Expressway, proximity to National Highway networks, and the proposed dual airport linkage have all contributed to the area’s rapid transformation. Moreover, the 10,000-acre Aravalli Jungle Safari project is expected to further enhance Sohna’s appeal as a green and lifestyle-centric investment zone.
The location also enjoys strong accessibility; just about 40 minutes from Gurugram’s Cyber Hub and Golf Course Road, and under an hour from Delhi’s Indira Gandhi International (IGI) Airport.
Currently, Sohna houses around 8,200 residential units, of which nearly 45% remain available in the primary market. Analysts say this reflects a healthy absorption rate and sustained buyer interest. Residential prices along the Sohna Expressway are presently in the range of Rs 10,000-12,000 per sq ft, making it almost 2.3 times more affordable than other premium micro-markets in Gurgaon.
Sohna Master Plan 2031
The ongoing development under the Sohna Master Plan 2031 envisions integrated residential, commercial, and industrial growth. The plan positions Sohna as a balanced hub catering to both affordable and mid-segment housing needs, complementing the high-end corridors such as Golf Course Extension and SPR.
Sohna’s growing industrial base, affordable housing options, and rapidly improving infrastructure are drawing both home buyers and investors seeking long-term appreciation.
Apart from Sohna, the top five growth corridors in Gurgaon include Golf Course Extension Road, Golf Course Road, Dwarka Expressway, and SPR. Among them, the Golf Course Extension Road continues to dominate the luxury segment, thanks to its connectivity with the Delhi-Mumbai Expressway, Sohna Road, and the Delhi airport.
Sector 63A, located along the Golf Course Extension Road, is home to projects like Anant Raj Estate by Anant Raj Limited, which epitomise premium urban living in the NCR.
October 31, 2025, 18:29 IST
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