What Are the Loan Defaulter Rights in India?

Borrowers fear defaulting on loan repayments, as it is unpleasant and stressful. Who would want loan recovery agents following up for repayments due on loan? Such situations tend to get worse with constant reminders from lenders.

If you are unable to repay a loan, it's important to know that you have rights and options available to you. In India, loan defaulters have certain rights that protect them from unfair practices and harassment by lenders. This article aims to simplify and explain these rights in simple terms, ensuring that you are aware of your rights and can make informed decisions regarding your financial situation.

Rights of a Borrower

If you find yourself unable to repay your loan, it is important to understand your rights as a borrower. Here are some key rights to be aware of if you default on your loan.

1. Right to Sufficient Notice

   As a borrower, you have the right to sufficient notice before a lender or bank can claim your assets in case of a loan default. In India, if a borrower cannot make loan payments for a period of more than 90 days, their loan account is categorised as a Non-Performing Asset (NPA). The lender must then send a 60-day notice allowing a borrower to make arrangements within the next 60 days.

2. Appropriate Valuation of Assets

   As a borrower, you have the right to ask for the right market value of the assets that the lender will sell to recover their money. Before the sale, the bank must issue a public notice specifying the sale details, including the price reserved, the asset’s market value, the date and time of sale and the auction venue.

3. Balance of Proceeds of the Auction

   The borrower holds the right to any extra money made from the sale of their belongings after the lender’s dues have been cleared. For example, if a borrower defaults on a home loan and the lender sells the property to recover the loan, the bank will be obligated to return any money received over and above the loan amount to the borrower.

4. Humanitarian Treatment

   Lenders usually hire loan recovery agents, which can result in unsavoury experiences. However, as a borrower, you have the right to be treated with respect and dignity. Recovery agents do not have the right to harass defaulters. They may communicate with the borrowers and meet them through mutual agreement. Also, visits should be scheduled between 7 am and 7 pm.

5. Right to Privacy

   Even when borrowers become defaulters, they have the right to privacy. According to RBI guidelines, banks must follow the code of conduct while recovering bad loans.

   📗 Related reading- Read this to learn more about loan default and do's and don'ts for loan defaulters.

What to Do if You Are Unable to Pay Your Loan?

If you are unable to pay your loan, you must contact your lender and explain your situation. A suitable repayment or loan settlement plan can be chalked out. Loan restructuring is also an option.

Choosing to ignore loan repayments can result in late fees and hamper your credit score. You may also be liable to pay penalties. Hence, the best option is to be honest and proactive about your situation and work with your lender to find a solution.

The other option is to apply for a personal loan, which can help you with the repayments. A personal loan can help you pay your EMIs timely and consolidate your debt. You can easily get a personal loan on platforms like KreditBee. These loans are disbursed within 10 minutes to help you pay your EMIs.

Tips to Avoid Defaulting on a Loan

Defaulting on a loan is serious and must be avoided at all costs. The following are a few tips on how to avoid a loan default:

1. Communicate clearly with the lender

   This step is crucial if you think you are at risk of defaulting. You can also try to work out a proactive solution.

2. Understand the loan agreement clearly

   You must understand the terms of your loan agreement to avoid defaulting.

3. Analyse other financing options and offers

   Explore alternative options to ensure your EMIs are not impacted. A great alternative option is a personal loan.

4. Manage your budget

   Once you apply for a loan, you must manage your budget to ensure you have sufficient money to clear your EMIs.

Benefits of Availing a Personal Loan to Pay Your Debt

When faced with financial emergencies, our first instinct is often to rely on family for money, believing we have no other options. Alternatively, we may approach high-interest money lenders, exacerbating an already difficult situation. However, there is a better solution: consider applying for a personal loan to help repay your debts.

Here are some of the advantages of opting for a personal loan:

1. Affordable EMIs

   Personal loans are one of the best options to pay your debt. No collateral is needed, and the amount is disbursed immediately. You can select a loan amount with a suitable tenure and adjust your EMIs based on your financial capabilities.

2. No strain on relationships

   By opting for a personal loan, you can avoid putting strain on your relationships with family members and friends. Instead of relying on them for financial assistance, a personal loan can help you pay off existing debts, providing you with a sense of independence and privacy.

3. Managing high-cost debts

   High-cost debts can strain your finances. They can also affect monthly budgets as you will likely spend your income on clearing these debts. Personal loans can help pay off high-cost debt.

   Get a personal loan on KreditBee with flexible repayment terms.

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Conclusion

It is important for borrowers to be aware of their rights when facing loan default situations in India. Understanding these rights can help borrowers navigate through the challenges and protect their interests. By knowing their rights, borrowers can seek fair treatment, negotiate repayment plans, and avoid any unlawful or unethical practices by lenders. It is recommended that borrowers consult with legal professionals or consumer protection agencies to fully understand their rights and take appropriate actions when dealing with loan default issues.

Remember, being informed and empowered as a borrower can make a significant difference in resolving loan default situations and safeguarding financial well-being.