Full and final settlement
Online Debt Management Guide - Page 5 of 6:
Negotiations will be entered into with your unsecured creditors in order to settle the accounts at a discounted amount. This can be as little as 60% of the outstanding balance. This option can be extremely useful if you have acquired a lump sum, maybe from an inheritance, or gift from a relative, that may not be quite sufficient to repay all of your unsecured credit. Similarly, if you own a property and have a proportion of equity that can be offered to your creditors, a one-off payment in full and final settlement of your debts could well be acceptable to your creditors.
What are the advantages and disadvantages of a Full and Final Settlement?
Advantages
- You may able to settle your unsecured credit at a substantially discounted amount.
Disadvantages
- Your credit file may be affected by noting that some of your credit accounts have not been paid in full, but have subject only to a partial settlement.
Full & Final Settlement Case Studies
Let’s just have a look how this works in practice with a couple of worked examples:
Case Study 1
Mr & Mrs Q were struggling to maintain their financial commitments on two personal loans which had total amount owing of £16,200 and a combined monthly payment of £589. They had started to default on their payments….
One of Mr Q’s family members had recently left him an inheritance of approximately £11,300. Our experienced advisors then arranged a “Full & Final” settlement on their two loans, which enabled them to settle their debts using this sum as the final payment. This equated to a reduction of 31% on their loans as well as becoming debt free!
Case Study 2
Mr R had a repossession hearing in 6 days time. He had missed his last 4-months payments and so had been unable to obtain a remortgage or secured loan to pay off the arrears. He also had an unsecured loan of £8,400 that he had also started to miss payments on.
The Solution: Arrange a Sale and Rent Back scheme. Firstly this repays his mortgage in full, and ensures Mr R is able to remain in the property. This action will also clear his arrears and will provide him with a small cash surplus.
Furthermore, with the product selected, 12 months rent is also included, and this means that Mr R will not have to worry about making further rent payments for a whole year.
Using the surplus sum left over from the sale, Mr R would also be in a position to make a “Full and Final” settlement on his unsecured debt, which would amount to a 30% reduction.
At the end of the 12 months - Mr R will have a number of options. He can:
- remain living there paying the rent figure that was agreed at sale-time.
- move out and find a more suitable property for his needs
- have the option to buy the property back – should his situation have improved significantly.
NEXT: Professional Credit Management with Shire Direct ›
Shire Direct and Shire Direct Mortgages are trading styles of Shire Processing Centre Limited which is
Authorised and regulated by the Financial Services Authority in respect of regulated mortgage products and general insurances.
Registered No: 302389. Commercial funding and Secured Loans are not regulated by the FSA.
Licensed Credit Brokers. Consumer Credit Licence Number: 349999.
Shire Processing Centre Limited is registered under the provisions of the Data Protection Act by the Information Commissioners Office: Registration No: Z6795249. Registered in England & Wales. Company number: 2732202. Telephone calls may be recorded for training, monitoring and security purposes. All applicants must be aged 18-years or over.
