Loan Default – Recently I got one email from one reader saying his financial condition is not good he is unable to pay the loan on time. What happens in the case of loan default? Well, as per rule when you take a loan, you have to repay the loan on time via EMI. However, due to financial crises such as job loss, accident or due to other reasons if you are unable to make the loan payment on time your loan can go to default.
Loan default generally happens in two conditions either person is not willing to make payments or not in a position to make payments due to financial crisis. There are different consequences when loan default take place. In this post, I will share how to save yourself from loan default as well as the consequences of loan defaults.
How to save yourself from Loan Default?
Few proven ways to save yourself from the Loan Default are given below.
Restructuring of Loan
The first option to save yourself from loan default is the restructuring of a loan. Most of the bank provides facility for the restructuring of a loan. This facility depends upon the bank and type of loan taken by you. You have to have a dialogue with a bank for the restructuring of a loan. Restructuring means increasing the duration of the loan. Once the duration is increased your EMI will come down and you will get relief. However, in the long run, you will end up paying more money as interest would be higher. This facility is also known as rescheduling debt.
Deferring Payment for Few Months
Deferring Payment for a few months is the next option. If you are likely to stay in a financial crisis situation for the few months you can opt for this option. Bank provides the facility of deferring payment. Some bank charges additional money in order to provide this facility.
One time settlement
One-time settlement is the next option. In this option, you need to negotiate with the bank for a one-time settlement. You need to show your financial situation and convince the bank about a one-time settlement at a lower amount. The bank may or may not allow this. Sometimes banks may ask you to declare bankruptcy at this point. If this is the case, speaking with experts like those at Stone Rose Law is advised to ensure this is the right path for you.
Conversion of Loan
Conversion of loan is a very good option in case of an unsecured loan. In this case, you need to convert your loan from unsecured by secure by providing collateral to the bank. The conversion helps to reduce interest rates and EMI burden.
Taking help from the relatives
You can select any of the options given above in order to save yourself from loan default. If none of the above options worked out you can take help from relatives or friends asking for money. The financial help from relatives or friends may save you from a bank default situation.
Consequences of Loan Default
In case you are unable to pay the loan on time (loan defaults) bank will take strict actions including taking possession of the asset (for a secured loan). The various consequences of loan default are given below.
Personal loans are unsecured loans. Bank has no collateral or asset against the loan. Bank will take the following actions in case you are unable to pay a personal loan on time.
- Bank will issue a notice to you will time frame of repaying EMI in the next 7-15 days. It will be the first notice issued by the bank.
- If you are unable to pay EMI in time, the bank will call you for the negotiation. You have to settle the case on the table in order to save yourself from litigation. Bank may ask you to convert your loan from unsecured to secured loan. If negotiation fails bank may file a court case. It will be a civil dispute case where arrest can not be made.
- Bank may make use of the post-dated cheques given by you at the time of availing a loan. In case cheques are not cleared as per rule arrest can be made.
In the case of vehicle loan banks generally take the following actions if you are unable to pay the loan on time.
- Bank will issue a notice to pay the loan within 7-15 days. If you are unable to pay EMI within a given time period bank will take possession of your vehicle.
- If you are unable to pay EMI within notice period, pre-sale notice will be issued to the borrower. It will be for seven days. The notice will include details about contact person for payment and release of vehicle. If you repay loan you can submit the proof and take possession of vehicle.
- In caes you are unable to pay EMI in the notice period bank may take further step to acution your vehicle for recovery of loan. It generally takes 90 days for this process.
Default on Home Loan payment has different types of consequences. Details are given below.
- A notice will be issued to borrower under SARFESAI act. For issuing notice asset must be classifed as NPA by the bank.
- The customer can regularize the notice by paying EMI within 60 days time period.
- If the borrower failed to pay money, bank will issue demand possession notice and take possession of the property for which home loan is taken.
- In case a borrower does not come forward to settle loan, bank will take further steps to action the property. Bank intimate venue and time of auction to a borrower. It generally takes 90 days after taking possession.
- During above timeline if the borrower settle the due by making payment, possession of the property will be again given to the borrower.
Loan default can have serious consequences, you may face phone several calls from recovery agents, legal notice from advocate and even seizure and action of your assets. If a loan goes to litigation you need to spend additional money for court cases.
Even you opt for rescheduling your debt or opting for one-time settlement your credit score will be impacted negatively. The history of your loan rescheduling or deferment will be captured in your credit report. You will face a problem when you want to take another loan.
So, don’t get lured with offers given by banks for loans. Go for a loan if you are sure that you will be able to pay EMI regularly without fail.