We take out loans to purchase a house, a car, and other items for the enjoyment of our family. But what if the borrower passes away? After the borrower’s passing, who will be liable for repaying such enormous loans?
It is important to realize that not all loans are the same type in order to understand the answer to this query. Loans are maintained in the secured and unsecured categories.
- Kinds Of Loans
Home loans and vehicle loans are considered secured loans, but credit card and other unsecured loans have unaffordable monthly payments. Let’s examine each situation individually to see if the bank may collect the debt by placing pressure on the borrower’s family in the event of a fatal accident.
- House Loan
The second co-applicant will be solely responsible for repaying the loan if a combined mortgage has been taken out and the original applicant passes away. The bank has the right to use the loan recovery mechanism provided by the SARFAESI Act, the Debt Recovery Tribunal, or the Civil Court if the other applicant is likewise unable to repay the loan. By seizing ownership of the property and selling it, the bank may recoup its debt. Banks, however, offer the family members a few days to find funds to repay the loan. If the dead individual has a term insurance or any other type of policy, the banks offer the family members time to arrange funds through the policy to repay the debt.
- Auto Loan
The family of the borrower is liable for repaying the debt in the event of the death of any of the borrowers. If the family is unable to repay the loan, the bank will seize the automobile and sell it at auction to recoup its loss.
- Personal Loan/Credit Card
These loans fall within the category of unsecured loans, along with credit card debt. The bank is prohibited from requesting repayment from the decedent’s remaining family members or legal heirs in the event that they pass away before repaying a personal loan or credit card obligation. The property cannot be connected since there is no security for an unsecured loan, hence it cannot be. Banks write it off, or place it in the NPA account, in such a case.
What is the process for repaying a Personal Loan when the borrower passes away?
- If the borrower dies, notify the creditor or lender; otherwise, the EMIs will be assumed to have been paid in accordance with usual procedures.
- Find out from the lender how much is still owed in whole and in total.
- Verify if the borrower has life or personal loan insurance in his or her name. It can be applied to debt repayment.
- If there is no insurance, the loan administrator should ask the borrower’s relatives about any belongings, property, or land they may have held.
- The remaining debt will likely be wiped off only if the personal loan is in the borrower’s name if the assets are not sufficient to pay off the obligations in full.