What Happens to a Personal Loan After Death of Borrower?
Nobody wants to talk about their death. But it is natural; everyone who is born has to die one day. We can not predict when we are going to die. When a person dies they may not only leave their family members in emotional pain but also a financial problem. A loan is taken in times of need but after the borrower’s death, it puts his/her family in financial misery. Suppose if they took a personal loan then what happens to a Personal loan after death? To get an answer to this question let us know that what a personal loan is.
A Personal Loan
A personal loan is a kind of loan that lets us borrow money from banking and non-banking financial organization. Personal loans come in the category of unsecured loans. Bank does not ask you to pledge anything to the bank as security; this is the reason that personal loan interest rates are quite high as compared to any other loan.
Personal loans are loans that don’t need collateral as they are unsecured loans where you can repay the amount between 1-10 years. Personal loans are easy going and can be used for multi-purposes. They have lower processing charges and higher borrowing limits. Personal loans come with a fixed interest rate. Valid Income proof and CIBIL score of 700 and above is mandatory. The applicant/borrower has to be eligible before applying for a Personal Loan. The personal loan eligibility can be checked by using an Eligibility Calculator.
Personal Loan gets approved after Document verification is completed. An Approval letter is given to the applicant where details of the lending bank, Loan scheme, Total loan amount approved, Interest rates, Processing fees, Tenure, Repayment options, foreclosure charges etc are mentioned. There are several repayment options and with the help of the personal loan EMI Calculator, one can calculate monthly repayment for Debt Consolidation.
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When a couple applies for a Joint home loan as Joint applicants, they both have to pay the repayment of the debt through their Joint Accounts. If the primary applicant passes away, the liability for repaying a loan is solely on the surviving joint debtor. If the living co-applicant fails to honour a loan commitment, the lender can take legal compensation in civil court.
Furthermore, while a co-owner is usually a co-borrower in a property, a co-borrower may or may not be a co-owner. A co-borrower accepts responsibility for loan repayment alongside the primary applicant but has no ownership rights.
If a spouse dies while carrying out a debt commitment on a secured loan, the surviving partner must notify the creditor and provide a copy of the death certificate. If the living partner fails to make payments on the debt, the lender may repossess the collateral or enforce the security.
The lender, on the other hand, cannot use enforcement action to compel the surviving spouse to make repayments, and any action for recovery or enforcement of security must be done in accordance with the law. When a spouse dies, the security offered to the lender during his lifetime becomes enforceable.
Property seizure for loan recovery is not permitted because there is no collateral for an unsecured loan. The documents required for personal loan are not that much which will eat your time only the legal proofs are enough. If a person dies before repaying an unsecured loan, the lender cannot seek repayment from the deceased’s surviving partner or legal heirs. The legal heirs are only liable to the lender for the value/assets inherited from the deceased. If no assets are inherited, the suit is dismissed.
For example, if the husband leaves behind movable or immovable assets that the wife inherits, creditors can claim all such assets from the surviving spouse under the law. In such an event, the court may attach all such assets, and creditors may recover the outstanding amount by selling them after taking appropriate legal action.
If the surviving spouse has given the creditor a personal guarantee for fulfilling the obligations assumed by the deceased spouse, the lender may attach, apply for, or sell assets of the surviving spouse to recover the outstanding amount.
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How Does the Bank Recover the Loan?
When a person dies irrespective of the cause of death has a repayment of loan due. At such times, the guarantor will have to repay the debt. In the absence of a co-borrower or guarantor, the bank approaches legal heirs to clear the loan in proportion to their ownership of the property/asset. If the loan is not paid off by the legal heirs, the bank may seize physical possession of an asset, such as a house or a car, and auction it off to recover their losses. The primary responsibility for the loan repayment rests with the co-borrower or guarantor.
What is a Personal Loan Insurance?
Personal loan insurance helps you to pay the loan in case you are injured or suffering from any disease or deceased. Your loan repayment would be done by the Insurance company for Debt Consolidation. Personal Loan Insurance contains some terms and conditions which the borrower has to abide by.
But if their loan is insured which means they had insurance then the insurance company would be liable to pay the loan amount. Nowadays almost every loan comes with insurance because if something were to happen to the customer then the bank would not have anything to recover it with. That is why it is almost compulsory to have insurance with your personal loan so that your family members will not have to suffer from any problem in case you meet a bad faith. The reason behind this is the lender wants to be assured about the repayment of the loan. To know more about this you can visit the “Dial-a-Bank” website.
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Personal Loan After Death- FAQs
✅ Does a Personal Loan come under Secured or Unsecured Loan?
A personal loan is a type of Loan that can avail from banks. It comes under unsecured loans as it doesn’t require any security.
✅ What is Personal Loan Insurance?
Personal Loan Insurance is used at the time of the borrower’s death. Nowadays, people are using these Personal Loan Insurance for loans.
✅ How does the bank recover Personal Loans after borrowers’ death?
Banks recover the personal Loan by seizing their property. This will take into action if any family members or grantors, or co-applicants can’t repay the loan.
✅ Do Personal Loans get passed after death?
As a personal loan is an unsecured death bank go to court. According to the court’s decision, banks take a step.
✅ Who will repay the personal loan after the death of the borrower?
After the death of the borrower, the co-applicants or grantors should repay the loan. Otherwise, family members of personal loans should repay the loan.
✅ Can grantors and co-applicants repay the personal loan after the borrower’s death?
The grantor and co-applicants can repay the personal loan.
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