Worked examples and checklists
Loan settlement amount: worked examples for personal loans, cards and lump-sum vs instalment offers
Illustrative OTS calculations in rupees: how a settlement offer is built from principal, interest and charges, lump sum vs instalments, multiple lenders, and a counter-offer.
A settlement offer is easier to judge once you split the lender's claim into principal, interest and charges. Then compare the offer with the principal alone. Lenders often begin by waiving penal charges and interest charged after the account became an NPA. Deeper offers cut into principal. A lump sum paid quickly usually wins a better percentage than instalments, and a missed instalment can cancel the deal. The examples below use illustrative figures, not any lender's policy. Every settlement in India is decided under the lender's own board-approved policy under the RBI's compromise settlement framework. There is no fixed "standard" percentage, and anyone who quotes one is guessing.
This guide is part of the debt repayment plan checklist. Run your own figures in the settlement offer calculator.
How to break down the lender's claim
Ask the lender for a statement of account that splits the dues into the parts below. You are entitled to know how the amount was calculated.
| Part | Example | Notes |
|---|---|---|
| Principal outstanding | ₹1,80,000 | The amount actually lent and not yet repaid |
| Regular interest overdue | ₹22,000 | Interest on missed EMIs |
| Interest after NPA | ₹31,000 | Lenders recognise it only when paid; often negotiable |
| Penal charges | ₹9,000 | Since 2024, a separate charge, not added to the interest rate |
| Bounce charges with GST | ₹8,000 | |
| Total claimed | ₹2,50,000 |
Example 1: personal loan, lump sum
The lender offers to settle for ₹1,75,000 if paid within 30 days.
- Waiver: ₹2,50,000 − ₹1,75,000 = ₹75,000, or 30% of the total
- Compared with principal: ₹1,75,000 ÷ ₹1,80,000 = 97% of principal
So this offer waives all interest and charges and 3% of principal. That is a modest settlement. If you could repay ₹1,80,000 over a year or two, ask whether a restructuring at a lower rate is possible instead. You would avoid the "settled" record for roughly the same cash. See restructuring vs settlement.
Example 2: credit card, deep settlement
A card account has been overdue for 14 months.
| Part | Amount |
|---|---|
| Principal (purchases and cash not repaid) | ₹95,000 |
| Finance charges | ₹58,000 |
| Late fees, over-limit fees and GST | ₹17,000 |
| Total | ₹1,70,000 |
Offer: ₹68,000 in one payment.
- Waiver: ₹1,70,000 − ₹68,000 = ₹1,02,000, or 60% of the total
- Compared with principal: ₹68,000 ÷ ₹95,000 ≈ 72%
This is a deep settlement, typical of long-overdue unsecured debt. The card will show "settled", and the cooling period of at least 12 months applies at that issuer.
Example 3: lump sum vs instalments
Two versions of an offer on ₹3,20,000 of dues:
- Lump sum: ₹1,92,000 within 30 days, a 40% waiver
- Instalments: ₹2,16,000 in six monthly payments of ₹36,000, a 32.5% waiver
The instalment version costs ₹24,000 more. Is it worth borrowing from family to pay the lump sum? If family lends ₹1,92,000 interest-free and you repay them ₹16,000 a month for 12 months, you save ₹24,000 and your monthly outgo is lower. The risk shifts to a family relationship, so be honest.
Also read what happens if you miss an instalment. Many letters say the settlement lapses and the full dues revive, minus what you have paid. That is a serious risk if your income is unstable.
Example 4: settling several debts with a limited lump sum
You have ₹1,50,000 available from a fixed deposit, and three unsecured debts:
| Debt | Dues | Best offer | Waiver |
|---|---|---|---|
| Card A | ₹1,20,000 | ₹60,000 | 50% |
| App loan | ₹45,000 | ₹30,000 | 33% |
| Personal loan | ₹2,10,000 | ₹1,47,000 | 30% |
Settling Card A and the app loan uses ₹90,000 and clears ₹1,65,000 of dues. Settling the personal loan alone uses ₹1,47,000 and clears ₹2,10,000.
- Option X (Card A + app): clears 2 accounts, ₹60,000 left over toward the personal loan, which you then ask to restructure.
- Option Y (personal loan only): clears 1 account; the card and app loan keep accruing interest at high rates.
Option X usually makes more sense. The highest-rate debts stop growing, and the remaining loan is the one most likely to be restructured. Many borrowers do this. The priority guide explains why.
Example 5: preparing a counter-offer
The lender asks for ₹2,08,000 on dues of ₹3,20,000. You can raise ₹1,70,000.
- Show what you can pay: bank statements, termination letter, medical bills.
- Point to the breakdown: if interest after NPA and charges come to ₹95,000, a settlement at principal plus regular interest (₹2,25,000) is clearly above your means.
- Offer ₹1,70,000 as a lump sum within 15 days of written sanction.
- Ask for the reply in writing.
The lender may meet you in between, say at ₹1,85,000. Do not pay any token amount before the written sanction arrives.
What the numbers do not show
- Credit cost. A settled record can raise the rate on future loans or block them. See settle or keep paying.
- Tax. A large waiver, especially on a business loan, may have income-tax consequences under the Income-tax Act, 2025, which applies from 1 April 2026. Ask a tax adviser.
- Co-borrowers and guarantors. Make sure the letter releases them too. See the settlement letter checklist.
When to consult a professional
For settlements involving secured loans, business loans, guarantors or pending cases, have a lawyer or chartered accountant check the terms before you pay.
Frequently asked questions
What percentage do banks usually accept in a settlement?
There is no published standard. It depends on the lender's policy, the age of the default, the security and your ability to pay. Treat claims of a fixed "40% rule" as marketing.
Is it better to settle early or late?
Lenders rarely offer deep settlements on recent defaults. Waiting means more charges, more calls and possible legal action. If you will never repay in full, early negotiation with evidence is usually better than waiting for a "better offer".
Can I settle only the principal?
Sometimes. A principal-only settlement is common on long-overdue debts. Ask for the breakdown and make the offer.
Do settlements include GST?
GST may apply to some charges, such as bounce fees, but the settlement amount is what the letter states. Check whether the letter is inclusive of all charges and taxes.
Sources
- Reserve Bank of India: compromise settlement framework and penal charges rules
- Income Tax Department: tax treatment questions under the Income-tax Act, 2025
- RBI Complaint Management System: complaints about settlement terms not honoured
