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Letting go of an asset funded through life savings can be a soul-crushing experience. However, it is a possibility you need to be prepared for in case of a slowdown-induced job loss or business failure. Remember, even if a borrower defaults, she does not surrender all rights to the asset or to fair treatment.

Right for You Can't Pay Loan:   What are your rights if you can’t repay a loan?

I can't pay my personal loan

What Happens When You Can't Pay Back Your Personal Loan
  • Racking up late fees. The first thing that will happen if you miss your due date for a loan payment is a late fee. ...
  • Damage to your credit score. ...
  • Defaulting on your loan. ...
  • Debt collectors calling you. ...
  • Talk to your lender.
How do banks recover unsecured loans?
  • Banks typically give secured loans and unsecured loans. ... After following the specified norms in trying to recover the loans the banks take the posession of collateral and liquidate (auction) it to recover the loan. Normally business loans, home loans, mortgage loans and automobile loans all fall into this category.

Lenders have to follow the due process while initiating proceedings to recover their dues. In case of secured loans, the underlying mortgaged assets can be repossessed by the lenders under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act. However, they cannot do so without giving you adequate notice.

1. Right to adequate notice

The borrower’s account is classified as a non-performing asset (NPA) if the repayment is overdue by 90 days. In such cases, the lender has to first issue a 60-day notice to the defaulter. “If the borrower fails to repay within the notice period, the bank can go ahead with sale of assets. However, in order to sell, the bank has to serve another 30-day public notice mentioning details of the sale,” says V.N. Kulkarni, banking consultant and former credit counsellor.

2. Right to fair valuation of assets

Before selling the assets, the lender has to issue a notice specifying the fair value of the asset, along with the reserve price, date and the time of auction. “This is calculated by the valuers of the bank. If the borrower feels the value of the asset is undervalued, he can contest the current auction,” says Gaurav Chopra, MD and CEO, IndiaLends. You have the right to look for a new buyer and introduce them to the lender in a case you feel the asset is undervalued.

3. Right to balance proceeds

Even if your asset is repossessed, monitor the process of auction. Lenders are bound to refund any excess amount realised after recovering their dues. Ensure that you get this money as it legitimately belongs to you.

4. Right to humane treatment

Lenders do engage recovery agents to coerce borrowers to repay their loans. However, the agents cannot cross the line that banks have agreed upon as part of their code of commitment to customers. These third-parties can contact defaulters either at a place specified by the latter, residence or workplace. Moreover, they can make such visits generally between 7 am and 7 pm. They cannot violate norms of decency and civil behaviour during these visits. In case the agents attempt to intimidate or humiliate the borrowers or their family members, the latter can raise the matter with the lenders and finally, the banking ombudsman offices.

Non-performing assets

1 An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or instalment of principal has remained ‘past due’ for a specified period of time. The specified period was reduced in a phased manner as under:

2 If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realised. This will apply to Government guaranteed accounts also.

3 In respect of NPAs, fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods, if uncollected.

Can't afford my loan payments

If You Don't PayIf you stop paying on a loan, you eventually default on that loan. The result: You'll owe more money as penalties, fees and interest charges build up on your account. Your credit scores will also fall.

Can I reduce my loan payments?

Combining your debt with debt consolidation or a home equity loan can give you a lower monthly payment. ... Be careful about getting a loan that simply lowers your payments by extending the repayment period. You'll likely end up paying more interest over time than you would otherwise.