How to Close Bank Loan and How It Affects ECIB?

How to Close Bank Loan?

There are two different types of bank loans that the bank borrowers want to close or settle.

Regular Bank loan Settlement and Default Bank Loan Settlement.

Regular Bank loan Settlement/Close Bank Loan

A regular bank loan is the one that borrower is paying on regular basis in terms of monthly installments.

The payment of bank loan installments on a regular monthly basis is a very hectic or tiring job and the borrowers soon get fed up.

In order to get rid of the regular installment burden on the monthly income, most of the borrowers come to the conclusion to repay the loan as early as possible.

In the case of regular bank loan Settlement, the borrower has to pay the penalty charges which are higher in the first year and reduce gradually in the following years.

In order to discourage early settlement of bank loans, the banks usually put heavy penalty charges which are reduced gradually in the following years.

The Settlement of regular bank loan includes the payment of the Principal amount or bank-financed amount remaining in the loans, Penalty charges, Markup for the remaining broken days, FED and late installment charges if any.

The above-given charges are too heavy in order to discourage the settlement of loans in the early years.

Default Bank loan Settlement/Close Bank Loan

A default bank loan is one that is not paid by the borrower for a certain period of time in terms of monthly installments. this time period is usually three months. If the borrower does not pay the installment for three months then the bank report this borrower information to the State bank ECIB department which stands for Electronic Credit information bureau.

ECIB is a database maintained by SBP by collecting information from the member’s financial institutions and it contains the credit history of the borrowers for the last two years.

If the borrower pays off the default loan the concerned bank is liable to report this within ten days and the default status of the borrower is cleared in the following month of the repayment of the default amount.

The default amount may consist of two this. One type of charge may include the payment of the Principal amount or bank-financed amount remaining in the loans, Penalty charges, Markup for the remaining broken days, FED and late installment charges if any.

But if the default time is longer then the bank transfer the default case from the branch to the SAM department which deals with such default cases.

Now the borrower has the option to negotiate the repayment amount which may be the principal amount and the cost of the fund.

the interest on the bank loan consists of two facts one is the KIBOR or the SBP policy rate which is now 9.75% and it is considered as the cost of the fund and the second factor is the bank commission.

In the case of old default cases, banks sometimes agree to the borrower to repay the only principal amount and KIBOR and the charges stated above are waived off. as in such a case bank is trying to get back its principal amount and cost of fund hence it is ready to accept the offer.

If a bank is not ready on such terms then the borrower may knock on the doors of the court and put some reasonable excuse for not paying the bank loan and request the court to order for repayment on principal amount and cost of funds of the bank.

In most cases, the court decides in favor of the borrower and hence only the principal amount and cost of fund is given back to the bank.

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