New Delhi, July 1 -- When facing financial difficulties, repaying a loan on time can become challenging. In such situations, borrowers often consider loan settlement as an option. While settling a loan may provide short-term relief, it can have significant long-term consequences, especially on your credit score. Let's take a closer look at what loan settlement really means and how it can affect your creditworthiness.

A personal loan settlement is an agreement in which the lender accepts one payment that is less than the total amount owed. This usually happens when the borrower shows they cannot repay because of a job loss, unexpected medical issues, or other serious problems.

This is not the same as closing out a loan, however. A settle...