Loan Recovery Update: In present times, loans are essential for fulfilling many needs. People take loans from banks for houses, businesses, vehicles, etc., and repay them with interest. Before granting a loan, banks check a person’s financial history and approve the loan only after being completely assured. However, if a person taking a loan dies, the situation becomes complicated for the banks. In this article, we will explore how banks recover the loan in the event of the borrower’s death.

Banks Can Seize and Sell the Property of the Deceased

According to Tata Capital, if the person who took the loan dies, the bank first contacts the loan’s co-applicants. If the co-applicant is also unable to repay the loan, the bank then reaches out to the guarantor, relatives of the deceased, or the legal heirs to recover the dues. If no one can repay the loan, the bank can seize the deceased’s property and recover the outstanding amount by selling it.

Banks Seize Purchased Assets for Loan Recovery

In cases like home loans and car loans, banks seize the purchased house or vehicle. These assets are later sold in auctions organized by the bank. Once the auction is complete, the bank recovers its money from the sale proceeds.

Other Properties May Also Be Seized

For other types of loans, banks may seize and sell additional properties of the deceased borrower to recover the loan. This can create significant challenges for the borrower’s family.

Term Insurance Can Help

To avoid such situations, it is advisable to have a term insurance plan of at least ₹1 crore. In the event of death, the money from the insurance can be used to repay the loan, ensuring financial stability for the family.

Repayment of a Personal Loan After the Death of the Borrower

After the unfortunate death of the borrower, the family or co-applicant must know the necessary steps for loan repayment.

  1. Inform the Bank: A family member or co-signer must notify the bank about the borrower’s death to avoid the loan repayment continuing under normal terms.
  2. Responsibility for Repayments: If you are a co-applicant, you will be responsible for repaying the loan. If you are a family member, you can request the bank to settle the loan amount.
  3. Check for Insurance: The bank will check if the borrower has an insurance policy. If there is a policy, the insurance company will repay the loan to the bank.
  4. No Insurance: If the borrower has no insurance, the bank will check if there are any assets or properties left for the legal heir. If yes, the bank can file a suit to recover the loan amount.
  5. Loan Write-off: If the loan amount remains unpaid, the bank may write off the loan and move it to the NPA (Non-Performing Asset) account.