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Loan Defaulter? You Have Rights Too!

Loan Defaulter? You Have Rights Too!

  • By Saral Credit
  • November 01, 2021

In finance, default is the failure to meet the legal obligations of a loan. For example, you fail to make a mortgage payment when you have taken a home loan and are a homebuyer. Sometimes government or corporation fails to pay a bond that has reached maturity. So, this is all considered in the default. However, to be a loan defaulter is not a task for which you get stressed out. You must know all about the rights that you have been a loan defaulter.

What are loan defaulters?

Loans defaulters are the persons who fail to pay back a debt according to the initial arrangement after borrowing. In most, the consumer loans person misses successive payments over weeks or months. The period between missing a loan payment and having the loan default is known as delinquency. But always remember being a loan defaulter doesn't mean that you are a criminal. It doesn't mean that you don't have the right to be treated fairly and with respect.

There are some liabilities from the side of banks and financial institutions to follow a process when they handle a loan defaulter. If due for any reason, you are found to be a loan defaulter; then there are some rights of a loan defaulter that you must know. It is a sad experience when you let an asset funded through life savings; before letting go of such an asset, you need to be prepared. There can be any unexpected slowdown that can happen, like job loss or business failure. If you are found a loan defaulter, you must know that the borrower doesn't surrender all rights to the asset or fair treatment.

Here are some of the rights for loan defaulters that you must know. Avoid being a loan defaulter, but if such unexpected situations come that you are found as a loan defaulter, then these rights must help you out.

  • Right To Raise An Objection: Being a loan defaulter, you have to be heard. You can raise an objection to the repossession notice the bank sent to you during the notice period. After you raise an objection, the authorized officers have to reply within seven days whether the objection has been accepted or denied, but they must give a valid reason.
  • Right To Notice: After being declared as a loan defaulter, there is a right known as the right to notice. Banks, NBFC, or any financial organization must offer you enough time to repay the amount. After giving you enough time, they can repossess your asset or recover the outstanding amount. For example, if the loan is assessed as a non-performing asset, the repayment is overdue by institutions must give 60 days' notice to repay the amount. In addition, if due to any reason you failed to pay within 60 days, then banks or financial organizations must provide 30 days' public notice to mention the upcoming sale before selling the asset.
  • Right To Fair Valuation Of The Asset: The bank repossesses your assets when you fail to clear the dues within the given period. However, the thing to notice here is bank can't decide the value of your asset on its own. One month of Repossession notice will be sent to you, and with this, the bank also has to send a fair value notice to you. They will give you the information about the sale price as evaluated by the bank officials. If you find it underpriced or it's not satisfying by you, then you can raise an objection, and you can state the price according to you. From your side, the fair value for your property will be considered by the bank. They can re-evaluate the property.
  • Right To Claim Balance: sometimes, the condition comes where there is a possibility of getting a high sale price for your property. The bank had repossessed the property. Now here, you have the right to claim the balance amount if the bank has some amount left after recovering the outstanding balance.
  • Right To Be Fairly Treated: Being a loan defaulter doesn't mean that you have committed any crime. It is not considered a crime at all. Banks are regular entities, and they don't have the right to mistreat or harass you for defaulting. There are a few points that banks should keep in mind.
    1. According to your convenient place and time, the collection officer/bank agent has to request to meet you politely.
    2. There is a timing that they should follow, like the agent can meet you only from 7 AM to 7 PM.
    3. The agent should keep in mind that he or she should treat you and your family with respect without humiliating or harassing you. They can't even use abusive language.

Privacy of borrower: to repay the loan, sometimes lenders or the bank engage recovery agents to coerce the borrower. The borrower's privacy is to be respected, you should specify the place and time, and you can contact the agent either at your home or at your office.

Necessary Steps To Avoid Loan Defaults:

  • If you cannot pay the huge amount of the loan, then increase your loan period to make your EMIs affordable.
  • You can restructure and organize your loan and reset some of the terms and conditions.
  • Sometimes bank gives you the option of settling down the loan through one-time settlement payments. This option is the last, and you can choose it after thinking twice as this can negatively reflect your credit score.
  • You can take temporary relief if you are facing a financial problem temporary. But keep in mind that in this case, you can be charged a penalty.
  • Convert your unsecured loan to a secured one that helps you in lowering the interest rates.

How Can You Avoid Legal Action?

Sometimes the loan amount is so huge that the lenders or the bank can force you to repay the amount if you are not interested in paying it back to them. But sometimes, some legal actions are taken by financial institutions or banks. So, how can you avoid legal action?

  • If you are going through some genuine reasons for not paying the amount, you can approach the lender and talk to them about your existing problem. You can talk to them to extend the time to make the repayment or restructure the loan.
  • You can talk to the lender to increase the tenure and decrease the EMIs. By this, you can pay off the debt with ease.
  • In case of the worst condition, talk to the banks for the settlement, which means you will make a payment that is part of the outstanding amount. To avail of the future credit, the rest of the amount should be cleared out. This can relieve your loan burden, but remember this can negatively affect your credit health.

Also Read- How Long do Loan Defaults Stay on Your CIBIL Report?

How You Can Avoid The Debt Default:

  • Follow The Budget: Working and living on a budget is a good habit. You should prepare your budget every month to set aside some amount for the expenses like groceries, utility bills, insurance, and more. Sticking to the budget is the key to avoiding debt default.
  • Acceptance: This is the most crucial point where you should accept that debt was incurred because of insufficient funds. Remember, when you are a debtor defaulter how can you pay the penalties and fees?
  • Asking Family For Help: It is not just one member's responsibility; debt has to be dealt with by the entire family. Husband and wife together can deal with the debt but disclosing in front of kids can be discouraged.
  • Tracking Debt: Tracking is essential for a person who has more than one debt. One should note many things, like individual due date, the amount due for each debt, etc.

According to the DRT act, a lender can initiate recovery dues by approaching the debt recovery tribunal. This is done under a debt recovery due to the banks and financial institutions act, of 1993. This option is available when there is a huge value of outstanding as the amount of debt should not be less than Rs 20 lakh. 

We are not a part of an ideal world, so it's obvious to be a loan defaulter sometimes. There can be various reasons that force you to be a loan defaulter. Loan default is a reality of life; if your name ends up in the list of defaulters, then don't panic at all. Now you are aware of the rights when you are a loan defaulter so, take comfort in knowing that you are better laced now. Before thinking of the loan, one must understand that you must have a regular income to avail of the personal loan. You can be a salaried individual, self-employed or professional. The person who is employed with any company, his eligibility is also affected like his credit history. The duration of his work should be one year to 5 years or 12 -16 months.