4 Ways to Get Out of a Personal Loan Default

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Defaulting on a personal loan will possibly make you stumble into a spiral of debt. Loan repayment can be an uphill task if you run into scenarios, which makes it difficult to pay the dues on time. You most likely be wondering about the outcome or the consequences when you default at a personal loan repayment. Well, defaulting on a loan will not brand you as a criminal but, it is the thing that you must avoid in order to keep a healthy relationship with the financial institutions and your credit score strong.

The banks can restructure the loan based on your loan type. Simply extending the holding period of the loan will benefit you with smaller EMIs and therefore, managing it becomes easier. Although before restructuring the loan, the bank will have to provide the reason of default as per the guidelines issued by RBI. In most cases, the tenure can be extended up to one year and not more. Moreover, foreclosure will be practiced with a mutual aid from the borrower.

Will Defaulting on Personal Loan make you Lose the Ownership of Any Assets?

In most cases, the bank will look for possible solutions that will benefit both the parties if an only if the default made was due to some genuine reasons. Thus, the borrower can retain his/her asset, and on the other hand, the bank will avoid any changes made to its Non-Performing Asset portfolio. In cases like a job loss or an accident, the bank will consider this agreement and check whether you paid your EMIs on time on not. Thus, liquidating monetary assets may not be the first outcome of load repayment default.

Options That Will Favor You When You Default on a Personal Loan

  1. Rescheduling the Debt

The bank may extend your personal loan tenure if it feels that your financial position is not good and you are having trouble with keeping up with the EMI amount. However, it will lead to higher interest generation, but you will be relieved from your current situation. Furthermore, if you get into to the position where you think you can again pay the old EMI, a genuine negotiation with the bank may allow you to prepay the loan early. This will save you from the high-interest outgo if the bank does not charge you with any penalty.

  1. Deferring the Payment

In cases where you are likely to be able to increase cash flow that stabilizes your financial situation, the bank may provide you a brief pause of few months, before you can start with repayments again. However, the bank may charge you with a penalty for not making the payment on time.

  1. One-time Settlement

If your financial situation is such that you desire to repay the personal loan at one-go, the bank may provide you with one-time settlement option. However, a case-to-case approach will be followed in this situation. You would probably have to pay the settlement amount lower than the original amount as the bank may cut-off some additional charges. In case your financial condition is critical, you may require filing for bankruptcy to relieve yourself from further loan commitments.

  1. Conversion of Unsecured Personal Loan to Secured Loan

In the case of unsecured loans, the banks act stricter, therefore; you can convert your unsecured loan into secured loan by offering a security. This way your EMI, as well as interest rate outgo, will be lessened. Whatever happens, you have to remember that your intent to repay the loan looks genuine to the lender and the moment you realize that you will not be able to meet the obligations set by the lender for personal loan repayment, act wisely and talk to the lender about it.

What Happens When None of the Above-mentioned Options Work?

In this case, the bank will march to the next step of repossession of assets.

Movable Assets (vehicles):

  • The notice period of 7-15 days will be given to you by the bank to repay all the remaining dues and if not, the lender will recover it back from your vehicle.
  • After the recovery, the bank will again provide you a seven-day pre-sale notice period to pay the outstanding dues. The pre-sale notice will possess all the details of contact person and the concerned office from where you can repay the dues and release the vehicle.
  • If you tend to pay the dues with agreed terms of settlement, the bank will release you back the vehicle within one week after the payment.
  • And if you failed to make the payment, your vehicle will be sold via auction within three months after the repossession.

Immovable Assets (property/land/house):

  • Under u/s 13(2) of SARFAESI Act, you will get a notice from the bank. However, as per the guidelines set by RBI, this agreement is only applicable if the personal loan gets classified as NPA.
  • You will be given a two-month period to either settle the loan or regularize the account.
  • If you fail or refuse to pay, then the bank will provide you the ‘demand possession’ notice asking for the physical possession of your mortgaged property.
  • After the repossession, you will be given a one-month period to settle the personal loan. After which, your property will be sold off by the bank via auction. The bank will send you the details about the auction referring to the date, time and venue.
  • If you clear the dues in full, the bank might consider giving your property back to you after repossession and before processing the auction.
  • In case, your property fetches more than your loan, the bank is liable to refund the remaining amount to you after adjusting the dues.

So, if you have defaulted at personal loan repayment, do not panic. The above-mentioned pointers will help you deal with repayments in a comfortable manner. You can also take a soft loan from your friends and family members and pay off the immediate dues.

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