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Defaulting on Your Loans? You Have Rights Too

Defaulting on Your Loans? You Have Rights Too

  • By Saral Credit
  • May 13, 2022

Whenever a borrower fails to repay the loan EMI (s)he is marked as a loan defaulter. In banking terms, a loan defaulter is considered a criminal. However, even if you missed out any EMI and are marked as a loan defaulter, you don't lose your right to be treated with respect. For every loan defaulter, banks have a standard procedure to follow. This article will give you detailed knowledge about the rights you own as a loan defaulter.

Saving for your dream goal is tough with your income. That's why most people prefer taking a loan from banks or NBFCs. If you are already prepared for the monthly EMIs, you can conveniently repay them every month. However, not all are mentally and financially prepared to repay the EMIs resulting in missed payments. This brings you under the category of loan defaulter. However, with this categorization, you don't surrender your rights.

Regardless of your loan amount and failed EMIs, banks can't follow harsh and illegal efforts to get the pending amount. Instead, they follow a procedure to get possession of your asset and auction it. However, there are points/rights that you must know.

Right to Prior Notice: No bank or NBFC has the right to enlist you as a criminal. Before any bank considers you as a loan defaulter, they have to give you ample notice about the missed repayments along with the deadlines.

Most actions and proceedings are made under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act. Once the borrower's account is marked as Non-Performing Asset (NPA), the lender must issue a 60 days’ notice to the defaulter.

Non-Performing Asset: Any loan where the repayment is overdue for more than 90 days is considered as NPA.

If the notice period is over and the borrower is unable to repay dues within the notice period, the bank can proceed with the asset auction to recover the rest amount. However, before banks proceed with the auction, they have to serve another 30-days public notice mentioning the sale and asset details.

Right to Get Fair Value: As mentioned earlier, if you fail to repay the dues within a 60-days notice period after NPA declaration, your asset will be sold to recover the amount. After your property is marked for sale, they have to specify the asset's fair value. That's why they have to issue a 30-days sale notice that will include complete details about the asset along with its fair value.

If your property is undervalued, you can raise an issue and object with a better offer to the bank. It means as a borrower; you can find a potential buyer for your property and object with a higher property value than what's marked by the bank.

Realize Balance Proceeds: Most of you stop thinking of your asset once the bank repossesses it for auction. Instead, you should keep track of the entire auction process as most of the auctions are made online, i.e., e-auctions.

Banks are often left with the amount after recovering the dues. The banks are liable to give the leftover amount after taking their dues to the property owner. It's a legal practice as you are the primary owner of that asset. You are the sole owner of that amount and hence should reach the bank to get that amount.

Right to be Heard: You are given prior notice before marking your property for sale. You can communicate with the authorized officer during this period and put forward your objections. The respective officer has to respond to your request within seven days and provide a valid reason to reject your objections.

Right to get Human Treatment: You should always remember that banks are public entities, not moneylenders who work only for profit. Banks are liable to conduct politely throughout the process starting from legal notice to auction. Banks never disrespect the customers regardless of being a loan defaulter. They maintain the same code of conduct for every customer.

If the borrower isn't available for talk at the decided place, any designated agent can reach their home with all due respect and discuss the proceedings. The agents are not authorized to visit the borrower's house during unearthly hours. When it comes to the recovery agent, you must know a few points that are listed below:

  • The recovery agent must be authorized by the Indian Institute of Banking and Finance.
  • All recovery agents must have a valid identity card issued by the respective bank. Moreover, the agent must reach your home with an authorization letter from the bank.
  • If you feel harassed by the bank agent, you have the right to complain about him. The respective bank is liable to redress your grievance within 30 days.

From all the points mentioned above, it's clear the ultimate motto of banks is to get the dues on time and maintain the repayment schedule. However, some borrowers fail to do so, and hence banks follow legal procedures to repossess your asset and sell it to get their dues. In case you cannot pay the dues on time, there are some necessary options that you can discuss with your bank.

Increase Your EMI Period: You can ask the bank to decrease your EMI amount and increase the tenure to make it affordable. During the COVID pandemic, the government came forward to help those who lost their jobs and fell short of funds to pay for their EMIs. The government announced the option for borrowers to pause their EMI for the coming few months.

However, the pause of EMIs comes with the additional charge that was added with the EMI. However, it gives you the liberty to pause your monthly loan amount if you don’t have funds to deposit.

Take Temporary Relief: You can request a bank to relieve and pause your EMI for a few months temporarily. However, you will be charged additionally for skipping your EMIs.

Lower Your Interest Rates: Ask your bank to lower the interest rate based on current RBI rates. You can decrease the interest rate with a one-time payment based on RBI rates if you have taken a loan with a floating interest rate. You can also lower your interest rate by converting your unsecured loans to secured loans.

You can check the current base interest rate and ask your bank to lower your interest rate. Most banks offer you the option to lower your EMI tenure or EMI amount. You can make a choice accordingly.

Restructure Your Loan: Negotiate with the bank to organize and restructure your loan. They can help you by resetting some Terms and Conditions and lowering your EMIs.

Most of you manage your monthly expenses smartly and ensure no EMI is missed. Yet, many people make mistakes and take loans without planning repayment. Below given points are important for such borrowers.

Also Read- How Bank Loan Default Impacts the Borrower - A CASE STUDY

Plan Before You Take Loan: The foremost aspect to check is whether you are capable enough to repay the monthly EMI if you get a loan. It's always a good practice to plan your repayment options before applying. This will help you stay prepared in case you fall short of funds.

Understand the Purpose of Your Loan: It's essential to understand why you need a loan and what's necessary. Many times, it's easy to think rationally and plan your budget to save for the necessity and avoid taking a loan. However, not all needs can be fulfilled by saving as some necessities are urgent to fulfill. Hence, you need a loan for such items/assets.

Check Various Financing Options: Research is essential when you are applying for a loan. Evaluate multiple offers before you choose one. Different banks are ready to give you the desired amount, but each of them has an easy dispersal process, which offers low-interest rates, etc. When researching for a better loan option, consider the following points.

  • Interest rates
  • Processing Fees
  • Tenure
  • Down payment terms
  • Eligibility criteria

NOTE: Don't make loan requests from multiple lenders as it will harm your credit score. Prefer shortlisting a few and make your request accordingly.

Study Loan Agreement Thoroughly: Once your loan request is approved and the documentation process is ongoing, don't forget to read the loan agreement to ensure there aren't any hidden terms and conditions that may affect you in the future. Regardless of how lengthy the agreement is, make sure you sign it only if you are satisfied with the terms and conditions.

You should never forget that even if you fail to repay the loan on time, you still have certain rights. These rights are given to protect you from humiliation and harassment. Moreover, it also gives you enough time to repay the dues and get ownership of the asset.

With that said, you are now aware of loan defaulter rights that you must know if you fall in this category. Above all, it's always suggested to maintain a scheduled repayment of all your loan terms. Regular repayment helps you stay mentally satisfied. Moreover, it enables you to build a strong credit score essential for future loan requests.