What is the OTS Scheme for Bank Loans?


  • What should you do if you can’t pay the loan amount due?
  • What if you have to go for a one-time settlement deal?

The One-time Settlement (OTS) tool is used by lenders to recover dues from individuals with a default payment history. The lender agrees for a one-time settlement amount which will be lower than the total amount due. As a borrower, you need to repay the agreed amount at once within the time you are given to do so. If you are able to pay within the agreed time frame, you will avoid the much unlikely legal actions that lenders can take otherwise. Since the OTS amount remains less than the total due, you could ask, whether it affects your credit score? It may not impact your credit score, but will affect your credit history since that settlement will be recorded as debt settled. With that, most lenders will deny giving approval to unsecured loans such as personal loans. However, the option of secured loans is always there for you to avail of.

How Can You Avoid the OTS Scheme?

You can do so by first borrowing the amount which you can pay in Equated Monthly Installments (EMIs) easily. Avoid spending on unnecessary stuff and save the required amount for the EMI payment on time. If you have a credit card in addition to the loan, be careful of the purchases you make via a credit card. You need to ensure timely payment of loan EMIs and credit card bills.

When Can the Lender Agree for an OTS Scheme?

You can apply for an OTS from your bank if you have a valid reason for your non-payment otherwise the loan would be in default. When the borrower doesn’t pay for the loan for 3 EMIs then his account is considered NPA, and after that, you need to visit the bank branch to clear the disputes. If you are unable to pay due to unemployment or health issues, the bank may come to the conclusion of OTS. The benefit you will get with an OTS scheme is that you’re free from the debt of your loan once you pay the agreed amount.

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The difference between loan closure & Settlement

Usually, the borrower is confused between the two terms loan closure and one-time settlement, both are different. The loan closure can be both organic and inorganic. An organic closure will be when you pay the outstanding amount over the course of a loan. Similarly, when you prepay the loan from your own sources before the stipulated tenure, it will also amount to an organic closure. But when you close the loan amount via a balance transfer, it will be called inorganic closure. Yes, with a balance transfer, your loan with the existing lender closes and you, in turn, have to pay the loan EMIs at the new lender. Whereas OTS is an agreement to close the loan to reduce the debt amount.

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