Your Defaulted Loan Was Sold to an ARC — Here's What Happens to Your CIBIL Score
By Nitish Bharadwaj · Published Sep 2, 2026 · 6 min
When a bank sells a defaulted loan to an Asset Reconstruction Company (ARC), the original lender is required to stop reporting and mark the account 'Sold/Closed', while the ARC takes over credit bureau reporting under RBI's 2024-25 ARC Directions, updating your status fortnightly until the dues are cleared. The most common and damaging error is the original lender failing to close its entry — leaving the same debt reported twice and inflating your outstanding balance on paper. This guide covers how the sale is supposed to appear on your report, how long the 'Account Sold' remark stays, and what to do if you spot duplicate reporting.
A loan that quietly stops appearing on your monthly statement hasn't been forgiven — in most cases, it's been sold to an Asset Reconstruction Company (ARC) after slipping into serious default, and a different entity now reports it to CIBIL under its own reporting schedule. The sale itself isn't the biggest risk to your score. The biggest risk is the original lender failing to close its side of the entry, leaving the same debt sitting on your report twice.
Why Banks Sell Defaulted Loans to ARCs
When a loan turns into a Non-Performing Asset (NPA) — typically after 90 days of non-payment, the same timeline our guide on how a loan default becomes a formal NPA explains — banks often prefer to sell the debt to an ARC rather than pursue recovery themselves. ARCs specialise in recovering distressed debt, typically buying it at a discount to face value and then pursuing the borrower directly, through settlement offers, restructuring, or legal recovery under the SARFAESI Act for secured loans.
How the Sale Is Supposed to Appear on Your CIBIL Report
Under RBI's framework for ARCs, once a loan is sold, the original lender is required to stop reporting on that account and mark it as "Sold" or "Closed" in its submission to credit bureaus. The ARC then takes over reporting for the same debt, updating your repayment status — including any settlement or recovery — to all four credit bureaus on a fortnightly basis under RBI's Asset Reconstruction Companies Directions. Done correctly, this handover is clean: one account closes, one new entry continues, and your report reflects a single outstanding obligation throughout.
| Stage | What Happens |
|---|---|
| Loan sold to ARC | Original lender stops further reporting and marks the account "Sold" / "Closed" in its bureau submission |
| ARC takes over | ARC registers with credit bureaus and begins reporting the same debt under its own account entry |
| Ongoing reporting | ARC updates your repayment status fortnightly to all four bureaus until the dues are fully cleared |
| Dues settled with ARC | Account should be updated to a closed/settled status, ending further negative reporting |
Does Paying the ARC Actually Fix Your Score?
Clearing your dues with the ARC — whether through a lump-sum settlement or the full outstanding amount — should result in the ARC updating your account status to closed or settled, which stops further negative reporting from that point forward. It does not erase the fact that the account had gone to an ARC in the first place, similar to how a settled loan generally still shows the settlement history rather than looking identical to a loan repaid in full, a distinction our guide on loan settlement's impact on CIBIL score covers in more depth. A "Written-Off and Account Sold" remark that's since been marked closed carries less weight over time, but it doesn't disappear from your history overnight.
How Long the "Account Sold" Remark Stays on Your Report
There's no separate, shorter retention rule for accounts sold to an ARC — they follow the same general retention timelines that apply to other negative remarks on your CIBIL report, which our guide to how long negative remarks stay on your report covers in detail. What matters more practically is getting the account correctly marked closed or settled as soon as dues are cleared, since an account that stays open and unresolved on paper continues to weigh on your score regardless of how much time has technically passed.
What to Do If Your Loan Is Sold to an ARC
- Get written confirmation from your original lender that the loan has been sold, including the ARC's name and the outstanding amount at the time of sale.
- Pull your CIBIL report 4-6 weeks after the sale and check specifically for duplicate entries — one from the original lender, one from the ARC, both showing as open.
- If duplication shows up, raise a dispute with the credit bureau referencing the sale confirmation, asking the original lender's entry to be marked Closed/Sold.
- Negotiate directly with the ARC for a settlement or repayment plan, and get any settlement terms confirmed in writing before paying.
- After settlement, follow up to confirm the ARC has updated its bureau reporting — this can take a full reporting cycle or two to reflect.
Bottom Line
Your loan being sold to an ARC is a routine part of how banks handle serious defaults, not something to panic over on its own — but it does shift who reports your debt and how, under RBI's fortnightly reporting requirement for ARCs. The real financial risk is a duplicate entry from a lender that never formally closed its side, which can drag your score down further than the underlying debt warrants. Checking your report after any loan sale, and pushing for a written closure confirmation once you've settled, is the single step most borrowers skip.
Frequently Asked Questions
Does having a loan sold to an ARC always hurt my CIBIL score?
The sale itself typically follows an existing default that has already affected your score. The additional risk comes from duplicate reporting if the original lender doesn't correctly close its account after the sale.
How often does an ARC update my credit report?
Under RBI's Asset Reconstruction Companies Directions, ARCs are required to update your repayment status to all four credit bureaus on a fortnightly basis.
Will my score recover once I settle with the ARC?
Settling stops further negative reporting once the account is marked closed or settled, but the historical record of the account going to an ARC typically remains visible for the standard retention period that applies to negative remarks.