I took loan and gave him rs.3 lacs. He didn't pay me back. Now, the loan came for settlement and I am clearing it month on month after speaking with the collection team. Current situation I am not able apply for any loan and even not able to purchase a mobile for myself in EMI. How should I get my cibil scores corrected and get eligible for loans

Ans: Understanding Your Financial Situation
You loaned Rs. 3 lakhs to a friend who has not repaid you. This has affected your ability to get loans and purchase items on EMI due to your current financial situation and credit score. Let's explore steps to improve your CIBIL score and recover your money legally.

Improving Your CIBIL Score
Regular Payments
To improve your CIBIL score, continue making regular payments on your existing loan. Timely payments are crucial for rebuilding your creditworthiness.

Clear Outstanding Debts
Focus on clearing any outstanding debts. Even partial payments can help show lenders that you are committed to repaying your debts.

Avoid New Credit
Refrain from applying for new credit until your score improves. Frequent loan applications can negatively impact your credit score.

Monitor Your Credit Report
Regularly check your CIBIL report for any discrepancies or errors. Dispute any incorrect information to ensure your report is accurate.

Effective Budget Management
Create a Budget
Develop a monthly budget to manage your expenses and allocate funds towards loan repayment. This helps in tracking your financial commitments.

Prioritize Debts
List your debts and prioritize them based on interest rates and due dates. Focus on paying off high-interest debts first to reduce financial burden.

Emergency Fund
Build an emergency fund to cover unforeseen expenses. This prevents you from needing to take additional loans during emergencies.

Legal Steps to Recover Your Money
Communication
First, communicate with your friend and remind them about the loan. Sometimes, a gentle reminder can prompt repayment.

Legal Notice
If communication fails, send a formal legal notice. This serves as a warning and can often lead to repayment.

Civil Court
If the legal notice does not work, file a civil suit in a local court. Gather all evidence, including loan agreements and communication records, to support your case.

Alternative Resolution Methods
Mediation
Consider mediation as an alternative dispute resolution method. A neutral third party can help negotiate repayment terms.

Arbitration
Arbitration is another option where an arbitrator listens to both parties and makes a binding decision. This is faster than court proceedings.

Steps to Avoid Future Financial Issues
Written Agreements
Always have a written agreement for any loan given to friends or family. This helps in legal proceedings if the need arises.

Limit Personal Loans
Limit the amount of money you lend to others. Ensure it does not impact your financial stability.

Benefits of a Certified Financial Planner
Expert Advice
A Certified Financial Planner (CFP) can provide expert advice tailored to your financial situation. They can help create a personalized plan for debt repayment and credit score improvement.

Financial Planning
CFPs assist in comprehensive financial planning, including budgeting, investment, and risk management. This ensures long-term financial health.

Final Insights
You are facing a challenging financial situation, but with strategic planning, you can improve your CIBIL score and recover your money. Focus on regular debt repayments, budget management, and legal steps to recover your loan. Consider seeking advice from a Certified Financial Planner to create a robust financial plan.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: Managing a financial setback can be daunting, especially when it involves unpaid loans and damaged credit scores. You are not alone in facing such challenges. With careful planning and appropriate actions, you can recover your money, rebuild your credit score, and regain financial stability.

Understanding Your Current Situation
You lent Rs 3 lakhs to a friend who has not repaid the amount. The loan you took to lend him the money is now under settlement. This situation has impacted your ability to apply for new loans or even purchase items on EMI. Let’s break down the steps to address this.

Steps to Recover Your Money Legally
1. Initiate a Formal Request for Repayment
Start by formally requesting your friend to repay the loan. Send a written communication (email or letter) detailing the loan amount, the repayment terms initially agreed upon, and the current outstanding amount.

Document Everything: Keep records of all communications. This will be useful if you need to take legal action later.
2. Send a Legal Notice
If informal requests don’t work, consult a lawyer to draft and send a legal notice to your friend. The notice should state:

The loan amount and the date it was given.
The repayment terms and the breach of agreement.
A demand for repayment within a specified time frame (usually 15-30 days).
3. File a Civil Suit
If your friend fails to respond to the legal notice, you can file a civil suit for recovery of money in a court. Here’s the process:

Consult a Lawyer: Engage a lawyer who specializes in such cases.
File a Case: The lawyer will file a case in the appropriate court.
Court Proceedings: Attend the court hearings. The court will examine the evidence and give a judgment.
4. Explore Alternative Dispute Resolution
Consider mediation or arbitration as alternative ways to resolve the dispute. These methods can be quicker and less formal than court proceedings.

5. Consider a Criminal Case
If you have evidence that your friend never intended to repay the money, you might have grounds for a criminal case. This could be under charges of cheating or fraud. Consult with your lawyer for the best course of action.

Rebuilding Your CIBIL Score
A good credit score is essential for future financial needs. Here’s how you can improve it:

1. Continue Making Payments
Ensure you continue to make timely payments on your existing loans and bills. Consistent payment history significantly impacts your credit score.

Automate Payments: Set up automatic payments to avoid missed deadlines.
Track Due Dates: Maintain a calendar of all payment due dates.
2. Reduce Outstanding Debt
Focus on paying down your debts. High outstanding debt relative to your credit limit can lower your score.

Debt Avalanche Method: Pay off high-interest debts first.
Debt Snowball Method: Pay off smaller debts first to build momentum.
3. Avoid New Debt
Limit taking on new debt until your current situation improves. Each new loan application can impact your credit score negatively.

Use Credit Sparingly: Keep credit card balances low and avoid unnecessary loans.
4. Check Your Credit Report
Regularly check your CIBIL report for errors or discrepancies. If you find any inaccuracies, report them to CIBIL for correction.

Request Reports: Obtain your credit report annually for free from the official CIBIL website.
Dispute Errors: Use the CIBIL dispute resolution process to correct any mistakes.
5. Maintain a Healthy Credit Mix
Having a mix of secured and unsecured loans can positively impact your credit score. However, manage these wisely to avoid over-leverage.

Practical Financial Management Tips
Effective financial management is crucial during this period. Here’s how you can manage your finances better:

1. Create a Budget
Develop a monthly budget to track your income and expenses. This will help you manage your money more effectively.

Categorize Expenses: Break down expenses into fixed and variable categories.
Set Limits: Allocate specific amounts for each category and stick to them.
2. Build an Emergency Fund
Set aside a portion of your income to build an emergency fund. This fund will be a financial cushion in case of unexpected expenses.

Start Small: Even small contributions can grow over time.
Use High-Interest Accounts: Park your emergency fund in high-interest savings accounts or liquid mutual funds.
3. Cut Unnecessary Expenses
Identify and eliminate non-essential expenses. Redirect these funds towards debt repayment and savings.

Review Subscriptions: Cancel unused subscriptions and memberships.
Smart Shopping: Look for discounts and deals when shopping.
4. Increase Income
Explore ways to increase your income. This could be through side gigs, freelance work, or part-time jobs.

Leverage Skills: Use your skills to earn extra money, such as tutoring, consulting, or freelance writing.
Invest in Learning: Enhance your skills to open up new income opportunities.
Understanding Legal Frameworks for Money Recovery
1. The Indian Contract Act, 1872
This act governs the enforcement of contracts in India. If your loan agreement with your friend was formalized (even orally), it can be enforced under this act.

2. Negotiable Instruments Act, 1881
If your friend gave you a cheque that bounced, you can take legal action under this act.

3. Small Claims Court
For amounts less than Rs 20 lakhs, small claims court can be a faster and less expensive option for money recovery.

Steps for Filing a Case in Small Claims Court
1. Preparation
Prepare all necessary documentation, including the loan agreement, communication records, and any evidence of repayment demands.

2. Filing the Complaint
Submit a complaint to the small claims court. The complaint should detail the amount owed and the circumstances of the loan.

3. Court Proceedings
Attend court hearings and present your case. The court will examine the evidence and issue a judgment.

Protecting Yourself Financially in the Future
1. Formalize Loans
If you lend money in the future, ensure all agreements are formalized in writing. Include clear terms and conditions.

Legal Agreements: Draft formal loan agreements with clear repayment terms.
Witnesses: Have witnesses sign the agreement if possible.
2. Limit Personal Loans
Avoid lending large sums of money to friends or family without proper security.

Evaluate Risk: Assess the risk before lending money.
Seek Collateral: Consider asking for collateral for significant loans.
3. Financial Literacy
Enhance your financial literacy to make informed decisions.

Courses and Workshops: Attend financial literacy courses and workshops.
Reading: Read books and articles on personal finance and investment.
Final Insights
You are in a challenging situation, but with the right steps, you can recover your money and rebuild your credit score. Here’s a summary:

Recovering Money:

Send formal repayment requests.
Issue a legal notice.
File a civil suit if necessary.
Improving Credit Score:

Continue making timely payments.
Reduce outstanding debt.
Avoid new debt and check your credit report regularly.
Financial Management:

Create a budget.
Build an emergency fund.
Cut unnecessary expenses.
Explore ways to increase income.
Legal Frameworks:

Utilize the Indian Contract Act, Negotiable Instruments Act, and Small Claims Court.
Future Precautions:

Formalize loans.
Limit personal loans.
Enhance financial literacy.
Implement these strategies diligently to regain financial stability and secure a better financial future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: You were looking forward to getting an education loan of Rs. 7.5 lakh. Unfortunately, the loan was canceled because of your co-borrower’s low CIBIL score. I understand how crucial this loan is for your education. Let's explore the steps you can take to secure the required funds.

Assessing the CIBIL Score Impact
CIBIL Score Role: The CIBIL score is critical for loan approvals. Banks rely on it to assess the risk associated with lending money. A low score of your co-borrower indicates a higher risk, leading to loan rejection.

Focus on Your Own Score: If your own CIBIL score is good, you can reapply with yourself as the primary applicant. Sometimes, banks may overlook the co-borrower’s score if the primary applicant has a strong credit history.

Exploring Alternative Co-Borrowers
Consider Another Co-Borrower: If possible, consider another family member with a good CIBIL score as the co-borrower. A better score improves the chances of loan approval significantly.

Involving a Guarantor: Some banks allow adding a guarantor instead of a co-borrower. A guarantor with a strong credit history can enhance your loan eligibility.

Approaching Different Lenders
Public Sector Banks: Public sector banks are generally more lenient with education loans. They may have different criteria, so it’s worth applying to a few of them.

NBFCs: Non-Banking Financial Companies (NBFCs) are another option. They may offer education loans with more flexible terms, even if the CIBIL score isn’t perfect.

Private Lenders: Some private lenders specialize in education loans and may consider your overall profile rather than just the CIBIL score. However, interest rates might be higher.

Government Schemes and Subsidies
Government Schemes: Look into government schemes like the Credit Guarantee Fund Scheme for Education Loans (CGFSEL). This scheme reduces the risk for banks, making them more willing to lend.

Interest Subsidies: If you meet certain criteria, you may be eligible for interest subsidies under various government schemes. This could make it easier to secure a loan.

Improving the Loan Application
Re-Check Documents: Ensure all documents are complete and accurate. Incomplete or incorrect documentation can lead to loan rejection.

Highlight Academic Performance: Emphasize your academic achievements and future potential in the application. A strong academic profile can sometimes compensate for a co-borrower’s low CIBIL score.

Consider Collateral: If you have any assets, offering collateral can strengthen your loan application. Secured loans are less risky for banks and might be approved even if the CIBIL score is low.

Immediate Financial Alternatives
Personal Loans: If time is of the essence, you can consider applying for a personal loan. Though interest rates might be higher, it can provide immediate funds for your education.

Family Loans: Consider borrowing from family members. It can be a quick and interest-free solution, although it requires clear communication and repayment terms.

Crowdfunding: Crowdfunding platforms can also be an option. If you have a compelling story and clear goals, you might be able to raise funds for your education through donations.

Final Insights
Do Not Get Discouraged: The rejection due to a low CIBIL score is just a temporary setback. There are multiple other avenues to explore.

Explore Multiple Options: Don't rely on a single lender. Apply to multiple banks, NBFCs, and even explore government-backed schemes to increase your chances.

Long-Term Planning: While securing funds immediately is crucial, consider working on improving the CIBIL score of the co-borrower. This could help in future financial needs as well.

Consult a Certified Financial Planner: Before making any decisions, consult with a Certified Financial Planner. They can help tailor the right financial strategy for your situation and guide you through the process.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in