Taking a loan is quite common in today’s world. While loans do come in handy, it gets problematic when one fails to pay the EMIs on time. After a loan default, it’s normal to receive calls from the lender asking the borrower to repay the money at the earliest. However, even in case of defaults, the borrowers do not automatically surrender their rights to the asset. If the reason is genuine, they will get fair treatment as per the rules.
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As a borrower, you should definitely know your rights to tackle any situation of financial stress with your dignity intact, especially in the current high-interest rate regime.
Steps borrowers can take in case of EMI default on a secured loan:
If they intend to keep the asset:
Borrowers have the right to approach the bank/lender and be heard. First and foremost, the borrower should write to the loan officer about their genuine status and state why they cannot repay the loan — like in case of job loss, medical emergencies etc.
“Make sure this communication is in written form like via emails. If after the first 30 days, borrowers still cannot manage to pay the next EMI, then once again they can make written a communication asking for another extension,” Manavjeet Singh, MD & CEO at CLXNS Technologies told CNBC-TV18.com.
Borrowers can ask banks to defer payments with penalties. The can be applied three times or for 90 days.
“The next step is where borrowers can ask the lender to restructure the loan, like lowering the EMI and thereby increasing the tenure. They can also go for debt consolidation, In the meantime, one must try to pay off the previous EMIs. One way to do so is to raise fresh debt against a bank's fixed deposit or gold loan or asking friends and relatives. If borrowers are unable to pay EMIs for six months or 180 days straight, the lender has a right to seize the asset," Singh said.
Lastly, home loan insurance can be used, which has the option to safeguard borrowers in extreme cases such as permanent disability or death.
If the borrower intends to surrender the asset:
If borrowers miss three consecutive monthly EMIs, then the asset will be declared non-performing by the lender. Post these 90 days, the bank/lender will send a notice for another 60 days under the SARFAESI Act.
After this period of 150 days, the lender will issue a final public notice of at least 30 days informing the borrower about the sale of assets.
“So, borrowers will get an overall period of 180 days to pay the penalties. Continue the EMIs and keep hold of the asset,” Singh said.
"Before selling the asset, the bank will also share a fair value notice with borrowers. This notice will have details such as sale price, place and time of the auction. If the bank/lender sells the asset for an amount more than their dues, then borrowers have the Right to the Balance Proceeds. The bank/lender has to refund any amount excess than their dues,” he added.
Steps borrowers can take in case of EMI default on an unsecured loan:
In case it’s a genuine problem:
Borrowers can go for the loan restructuring option. They can provide a collateral and convert the unsecured loan to a secured loan. If they have a good past record, then the bank can give them a free EMI period of 3-6 months too.
“Banks will accept something instead of nothing as they also don’t want their NPAs to increase. However, this step will badly affect one’s CIBIL score and getting a loan in the future can be impossible or may come with a higher interest rate,” Singh told CNBC-TV18.com.
If borrowers are not willing to pay the loan
The lender will start with gentle reminders, contacting borrowers via text, emails and calls. After a period of 120 days of initial communication, the lender can send borrowers a demand letter claiming their dues. After this, the lender has the right to take a legal action.
More rights of the consumer in case of a loan default
Borrowers have the right to be heard by the lender. They have the right to decide the terms of contact. The time and place can be decided by borrowers. The bank has to contact borrowers at the mentioned hours and location. The time can be between 7 am to 7pm only.
"Borrowers have the right to be treated with civility. They can press legal charges if the bank/lender representative engages in misconduct such as yelling, physical intimidation or violence. The bank/lender has to share the details of the recovery agent with the borrower," Singh told CNBC-TV18.com.
