Personal Loan Default
Feels like yesterday when it was onerous and challenging to connect with people around the world and now, everything is at one’s fingertips. The lifestyle has changed tremendously over time. The current consumption pattern is substantially different from that of the 80’s or the 90’s. Whole paradigm of demand and supply has shifted to a new tangent.
While the demands were strictly restricted to necessities and any luxury which was not considered to be a necessity, or anything that was not important for survival was not looked at. In this era, people are working day and night not just to survive but to enjoy the luxuries of life as well and why shouldn’t they? With credit being available and easily accessible nothing is out of one’s reach. The stigma attached with borrowing from financial institutions is thinning continuously. With increasing awareness, people are inclining more towards taking loans from banks rather than relying on local moneylenders and landowners.
Banks are coming up with more feasible offers every second day and making our lives easier by availing options for us to buy the things we have been dreaming of since a long time. Let it be a home, your children’s education, a car, a small rough patch of cash crunch faced or any other personal need for which you need financing, loans are there to help us in such a situation.
With a sudden surge in the demand for loans witnessed by the banks, one of the most popular forms of loan that people consider a lot is personal loan. Personal loan offered by banks and NBFCs (Non-Banking Financial Companies) is a loan given to the customers to meet their personal needs. Unlike an education loan or an auto loan where the reason for taking the loan is quite fixed and the purpose is solely buying an automobile or education. A personal loan works almost like any other loan except here the flexibility of using the funds in case of a personal loan is in the hands of the customer.
The loan when taken has to be repaid. The principal amount is paid along with the specified interest rate as per the personal loan agreement. There may be situations where a person may not be able to repay the Equated Monthly Installments (EMI) or commonly called installments, or makes a default in the said payment of the personal loan. Loan default happens when a loan is not paid for a certain period of time. A customer may fail to pay a portion or the entire personal loan.
There are many reasons due to which a person may not be able make payments, some of them are as follows:
HIGH RATE OF INTEREST
The Personal Loan Interest Rate that is not a problem initially can become a burden for the borrower at the later stage of repayment of the personal loan. The customer may not have the capacity to repay due to any personal reasons.
INADEQUATE LOAN SIZES
The size of the loan sanctioned can also be a problem as the customer might not be in a situation to make up to the amount borrowed. It may happen that at the time of taking the loan it seemed feasible but later starts hampering with their situation.
Not a lot of people get away from claws of recession that easily. It affects a huge chunk of the society in an adverse way. People end up losing their jobs, businesses take a hit. A person who has taken a loan may not be able to keep up with payments during this phase of the business cycle.
MONITORING AND FOLLOW-UP
The error can be from the bank’s side. If the customers are not making prompt payments and the bank of the NBFCs are doing nothing to keep them in check, in such a case the banks are also responsible to monitor and take steps necessary to keep a track of installments made and yet to be made by their customers. The internal control system of the banks must be strong enough to avoid any such situation.
Personal loans are a bridge between your desire and funds required to fulfill that desire but one should always keep in mind that a loan agreement is a legal contract and when a customer makes a default and the payment is overdue, the banks or the NBFCs have every right to take a legal action if the matter goes out of the hand. The case of default is transferred debt collection or recovery agents.
It is of grave importance for the borrowers to know their rights in case of default. Some of the rights are:
RIGHT TO COMMUNICATE WITH THE LENDER
In case a borrower is not able to keep up with the repayment schedule, he/she has the right to communicate with the lender regarding the loan. The borrower can ask the lender to negotiate new terms and restructure the repayment schedule of the personal loan. The lender may provide the customer with a longer tenure for the personal loan.
RIGHT TO RECEIVE NOTICE
If the borrower has failed to pay the Equated Monthly Installments (EMI) for three consecutive months, in such a case the lending institution has to make sure that they notify the borrower and they give them a notice period of 60 days, during which they are not allowed to auction off the collateral.
RIGHT TO ENSURE FAIR AUCTION OF COLLATERAL
The bank or the NBFC have the right to sell the collateral only when there has been no negotiation regarding extending the term of loan repayment or the customer has acknowledged the 60 days notice period but not in a state to repay at all. The borrower has the right to ensure that the collateral is valued fairly and then sold.
RIGHT TO BE HEARD AND TIMELY REDRESSAL
The borrower has the right to be heard. The inquiries or objections raised by the customer have to be considered and answered in a timely manner. The customer has to be updated about the possession of their asset.
RIGHT TO FAIR TREATMENT
Just because a customer has made a default, the banks have no right to treat them any differently or in an inhumanely manner. Any person who has made a default and is not being treated the way they should be, can file a complaint against the institution.
Taking necessary and prompt actions is the need of the borrower as far as failing to repay the personal loan amount is concerned. A single mistake and the tag of ‘loan defaulter’ may scare you for the rest of your life. It is crucial for one to know their rights as a personal loan defaulter, provided to them by the law.