On the death of the personal loan borrower, the bank cannot seize the property. The company pays when there is loan insurance. The guarantor or co-applicant has to repay the loan. Heirs are liable only up to the value of the inherited property.
Personal Loan News: Personal loan is a great relief for many people in case of sudden need of money. Compared to other loans, it is available quickly and no mortgage is required for it. But, if the borrower dies before the loan is repaid, what will happen to the remaining amount? Will the family have to repay that money?
attachment is not possible
Personal loans come under the category of unsecured loans. This means that this loan is available without mortgaging anything like house, car or gold. Therefore, if the borrower dies, the bank cannot legally seize the family’s home or any other assets.
What is covered by insurance?
After death, the first thing banks check is whether there is ‘Loan Protection Insurance’ on the loan or not. Most of the banks provide insurance by taking a small premium amount at the time of giving the loan. If there is such cover, then the insurance company pays the remaining amount to the bank. With this the loan gets closed and there is no burden on the family.
Guarantors and co-applicants
If more than one person has applied for the loan together, then even if one applicant dies, the other person has to repay the loan. Similarly, if there is a guarantor for the loan, then after the death of the borrower, the bank can ask the guarantor to repay the remaining amount. If they do not repay the money, it will have a negative impact on their credit score.
What is the responsibility of the legal heirs?
If the legal heirs (e.g. children, spouse) are not guarantors or co-applicants of the loan, they are not required to repay the amount. But here one important thing has to be kept in mind. If any property, investments or gold of a deceased person passes on to his heirs, the bank can recover up to the value of that property. For example, if a person has an outstanding loan of Rs 5 lakh and he dies, leaving behind property worth Rs 3 lakh, the bank can recover the loan from that Rs 3 lakh. But the heirs are not forced to pay the remaining Rs 2 lakh.
‘Write off’ if nothing is found
If there is no insurance on the loan, no guarantor and no property of the deceased, then in such a situation banks ‘write off’ that amount. This means that the bank closes the loan by writing off that amount in its account.
Family members should keep these things in mind
- In case of death of the loan taker, inform the bank immediately.
- Submit the application in writing to the bank along with the death certificate.
- Check the documents signed carefully while taking the loan. If bank employees pressurize you to repay the loan, do not hesitate to seek legal help.