If the collateral passes down to your family, they must liquidate it or hand over the asset for repayment
An instant personal loan is a popular way that many use to bridge financial gaps, be it during weddings, medical emergencies or more. Lenders offer affordable interest rates and flexible repayment plans to ensure one can repay the loan comfortably and conveniently.
When borrowers delay or default on repayment, the lender charges penalties and penal interest that drive up costs. So, one should always calculate personal loan EMI beforehand and check if it suits the budget before signing up.
After all, a strain on finances not only affects the individual borrower, but also his or her family. However, the borrower’s demise is a circumstance that can catch the borrower’s family unawares.
Read on to understand the course of action for instant personal loan repayment in case of a borrower’s demise.
Personal loan repayment liability: Who does it rest with?
Personal loans are unsecured loans, and therefore recovery is difficult for the lenders in case of the borrower’s death. When a loan is secured, the lender can sell the collateral to recover the dues and hand over any extra amount to the borrower’s heirs or nominee.
In the case of collateral-free loans, lenders cannot simply shift the repayment liability, regardless of the cause of death. The liability depends on numerous things, including whether there is a co-borrower, co-applicant or insurance associated with the loan.
Here is a look into what will happen in different situations:
Personal Loans Without Co-Borrowers or Co-Applicants
If there is no co-borrower or co-applicant of a personal loan, then the lender has no security or guarantee for repayment. This means that in case of the borrower’s death, the lender cannot shift the repayment liability onto the borrower’s legal heirs.
In simple terms, the lender cannot demand repayment from the family in case of the borrower’s demise. In such a circumstance, the lender will likely bear the loss and write off the loan as an NPA (non-performing asset).
However, remember that this is only for an instant personal loan without collateral or security. If there is any security or collateral offered, the lender can seize it to recover the loan amount.
Personal Loan With Co-Borrowers or Co-Applicants
An instant personal loan with co-borrowers or co-applicants gives lenders an added layer of assurance about repayment. If the primary borrower fails to repay the loan, the lender can recover the same from the co-borrower or co-applicant.
This also applies if the primary borrower passes away and the loan repayment is incomplete. This means that in the case of a personal loan with a co-borrower or co-applicant, the lender can shift the repayment liability.
In such a circumstance, the repayment liability will be shifted as per the terms and conditions laid out in the personal loan agreement. The co-borrower or co-applicant can talk to the lender about a different repayment plan.
It is in the co-borrower or co-applicant’s interest to calculate the personal loan EMI before negotiating with the lender. This will help ensure the new plan fits their budget and does not cause financial strain. However, the final decision is solely at the lender’s discretion.
Personal Loan With Insurance
Today you can get an insurance policy for various purposes, including securing the repayment of an instant personal loan or other kinds of debts. Insurance for debt repayment ensures that you or your family can pay the dues without financial stress.
The borrower's family can use the insurance policy to repay the personal loan in the event of the primary borrower’s demise. This means that the lender can recover the loan through an insurance policy if the primary borrower passes away before completing repayment.
However, for this process to take place, the legal heir or surviving member will have to notify the lender and the insurer. Remember, the insurer will be responsible for repayment only as per the policy terms.
What Should the Legal Heir/s Do In Case of the Borrower’s Untimely Demise
In case of the primary borrower’s demise, the surviving member or the legal heirs should aim to notify the lender as soon as possible. This becomes especially important if there are any auto-debit instructions related to repayment.
If the family does not notify the lender, the lender will continue to deduct loan EMIs from the bank. This can become an issue if the account does not have sufficient balance, as the bank will then levy a charge for the transaction not going through. In addition, the lender may apply penal interest and EMI bounce charges.
The legal heir and the family can also talk to the lender about settling the loan or using the insurance policy to repay the dues. It is crucial to remember that the lender cannot demand repayment from the heir and family if the instant personal loan is only in the name of the primary borrower who passed away.
Now that you know what happens with regard to instant personal loan repayment in case of a borrower’s demise, make sure your family knows about your debt. It is crucial to remember that if you have taken a secured loan, the lender can sell it to recover their dues.
If the collateral passes down to your family, they must liquidate it or hand over the asset for repayment. As such, exploring options like personal loan insurance can be a good move to ensure that your family does not have to worry about repayment in your absence.
Disclaimer: No Asian Age journalist was involved in creation of this content. The group also takes no responsibility for this content.