What Happens to a Personal Loan If the Borrower Dies?
Personal loans have been a blessing in disguise for a majority of people. Even if a personal loan comes with the baggage of interest that the borrower is expected to pay at a decided frequency, it still helps one in meeting a variety of expenses. With every borrower demanding a low-interest rate and the Indian banks trying to garner some financial stability in the aftermath of the US financial crisis, one doesn’t get much flexibility regarding the repayment tenure. And during this very repayment tenure, God forbid, if the borrower passes away, then the case becomes altogether more complex. Wondering what will happen next? In this blog by Bhumi Finance, the best personal loan providers in Azamgarh, we will be deciphering what happens to a personal loan repayment if the borrower dies.
The Tryst of Legal Heir
When the borrower passes away, then the treatment of such a loan depends on the type of loan in question - whether it was a secured loan or an unsecured one, a loan against property in Azamgarh, or a used car finance in Azamgarh. For secured loans, legal heirs come into the picture.
The ownership of the assets of the deceased passes on to the legal heirs. For secured loans, as a result, the legal heirs do not just see the possessions of the person who has passed away passed on to them but also their liabilities. Notably, the legal heirs have the opportunity to pay back the sum due and take back the possession of the pledged asset from the lender.
Personal Loan - Unsecured loan
In the case of a personal loan, the money is advanced without any collateral as it is a form of unsecured loan. If a person who has taken a personal loan dies in the middle of the repayment period, the lending institution does not have any recourse. This is because the loan is not backed by any security. As a result, the lending institution has to write down the value of the outstanding balance of a personal loan if the borrower dies before paying back. The lending institution cannot ask the legal heirs of the deceased to pay up the balance due. Now, in such a case, the following things are considered:
- Are there any co-borrowers?
If a personal loan has been taken by more than one individual and one of them dies, the liability of the remaining outstanding falls on the co-applicant. This is a scenario when a husband and wife have taken a personal loan either to increase the eligible amount for the borrowing or if the principal borrower has a low CIBIL score and the co-applicant with better creditworthiness is brought in to assuage the lending bank or NBFC. In the unfortunate case of both the co-applicant dying in an accident together, again the lender does not have any recourse despite their being a co-borrower.
So, if there is a co-applicant in the personal loan, whether they are the legal heir of the deceased or not, they are supposed to bear the liability of the entire outstanding loan.
In any case, borrowers should take out a loan only from a reputed lender like Bhumi Finance and not random personal loan agents in Azamgarh to ensure that, in the unfortunate instance of their demise, their family members do not come under any undue pressure to repay the outstanding amount.
- Informing the immediate family of the lender.
The family members of the deceased need to inform the lending institution about the demise of the person who has availed of the personal loan. This way lender gets an early alert and can write off the loan amount as a non-performing asset. In the absence of this information, if the deceased has money in their bank account and the loan agreement involves a direct debit of the loan amount via EMI, then the money will keep getting deducted from the account even after the demise of the borrower.
Opt for personal loans at a decent interest rate from one of the best lenders out there. You can also opt for home loans in Azamgarh, car finance Azamgarh as well as a business loan in Azamgarh Uttar Pradesh. Reach out to Bhumi Finance now at https://bhumifinance.com/.