What Happens When don’t Pay Your Loan? Know Your Rights In Case Of Default

by Shatakshi Gupta

If you are planning to take a loan then this question must struck your mind that not all borrowers are able to repay the loan amount. Some people have compulsion and some people default intentionally. Usually people repay the money of banks or non-financial institutions because they are afraid of action. Those who do not pay the interest and principal amount are declared as defaulters.

What if you default on any loan?

  • In many cases people actually become incapable of repaying the loan. Those who know the rights of loan defaulter, they speak strongly in front of banks or non-financial institutions. They explain why they are not able to return the money now and they intend to return the borrowed money in future. However, this will have a negative effect on your credit score. All your credit related information is sent to CIBIL when you take a loan and don’t repay it. This information is also given to other credit rating agencies.  This will make it difficult to take loans in the future.
  • Moreover, if you have mortgaged a property to take a loan, then the bank can attach this property.
  • On defaulting a notice is sent to the borrower mentioning the amount of loan and interest. If the bank finds that the borrower is deliberately not repaying the loan, the EMI has not been paid on time or the repayment has not been done despite the capability of borrower, then the bank can initiate legal action.
  • If there is a guarantor with the borrower, the bank first contacts him. There is a guarantor agreement for this. It is written in this that if the person taking the loan defaults in repaying the loan, then the guarantor will have to pay the money.
  • Banks initiate their action only if the first repayment is not paid. But how serious this action can be, depends on the dispute or relationship that develops between the bank and the customer. When initial efforts fail, only then do banks initiate legal action. 

Also read: Bank Is Not Listening To Your Complaints? File A Complaint With Banking Ombudsman; Here’s How

Know your rights:

  • If the borrower of the loan dies, suffers an accident or falls seriously ill, the bank gives a moratorium on the repayment. This moratorium is available to the borrower.
  • The Reserve Bank has clearly said that the borrowers have to given some time and banks can never use muscle power.
  •  Sometimes the situation also comes that due to deteriorating economic condition, the borrower is unable to pay the interest on time. This makes the amount of interest more than the principal amount.  In this case the borrower becomes unable to repay the loan. In this, banks offer one time settlement while giving a moratorium.  In this case, banks put this loan in Non-Performing Asset or NPA.  In this, the borrower is declared insolvent, who is considered incapable of repaying the loan.
  • To avoid this, the bank gives the person a chance to get out of the loan by paying a small amount at a time. It is seen that banks waive off most of the principal and interest and a lump sum amount is offered. This can be taken advantage of, but the credit score will go down and it will be difficult to take any kind of loan further.
  • Moreover, you cannot be threatened by any bank employee for not repaying the loan. Nor can he do you any kind of physical harm. They can’t misbehave with you in any way.
  •  It is also important to know here that these  people can come to you only during the day.
  • If you have taken a home loan and you are not able to pay the installments, then you do not need to panic. In this case, according to the conditions, they can auction the collateral.
  • If you are not able to pay the loan installment, then the bank sends you a notice and then gives time to repay it. If once again you are not able to repay the remaining installment of the loan within the time given by the bank, then the bank takes action to sell your property and even after that a notice of 60 days is issued to you.
  • Even if a bank sells your property in case of non-payment of loan installment, it has the right to keep as much money as you owe rest is given to Jews.

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