The standard norms for personal loan repayments in India require an individual to make EMI payments, comprising principal and interest components, over an available tenor. As a standard rule, such repayment is mandatory and needs to be maintained within the due date.
Failing such a requirement, each EMI delayed or defaulted attracts penal interest on the delayed amount, which a borrower must pay for a complete release of liability. However, such rules do not apply to the repayment of a personal loan if the person dies.
A repayment so awaiting is done through an alternative recourse if possible. Without any recourse to recovery, a lender is forced to declare the deceased borrower insolvent. Below given are some ways in which such loan recovery is possible.
Repayment through a new personal loan
A close relative of a borrower can choose to repay the outstanding personal loan if the person dies by availing of a new personal loan. Such an individual can be anyone observing the repayment responsibility, including children, spouse, parents, or even a guarantor.
When applying for a personal loan, an applicant must be suitably eligible to avail of additional funding based on their creditworthiness and financial standing. When doing so, make sure to calculate personal loan EMIs and check if you can easily accommodate it as a fixed expense payable from your income.
As the importance of the CIBIL score for a personal lending cannot be underestimated, make sure that you hold a credit score above 750 when applying for such new unsecured financing. Availing of a personal loan is also a way to consolidate your debt being serviced in multiple small values.
Now, other consequences are possible too for the recovery of a personal loan if the person dies. They are, however, not always imposable and available as recourse only if the kin agrees in certain cases. Below are some instances with varying conditions for an instant personal loan recovery in India if a borrower is deceased.
Compulsory recovery from a co-borrower
Recovery of a personal loan if the person dies in a co-borrower’s presence is compulsory. The lending institution can claim complete recovery of its total outstanding liability irrespective of the surviving co-borrowers share. The latter has an option to meet it either through their savings or through any other eligible means as long as they remain solvent.
Subjective recovery from a guarantor
A guarantor to the deceased’s loan liability initially signs up for the security of such repayment. Hence, the case of outstanding repayable due to the borrower’s demise falls upon him/her initially. However, if the guarantor has availed a protection plan against personal loan repayment in the case of a borrower’s demise or disability, they can stay financially covered.
Other agreements before signing the guarantor agreement are possible, too, such as being available until the presence of a new guarantor and limiting repayment guarantee only up to their income and/or savings.
Optional recovery from the deceased’s estate
A lender may resort to recovering the liability outstanding on a personal loan if the person dies through settlement on their estate. Such an estate may include proceedings from the deceased savings, finance available in any bank account, fixed assets, movable assets, and such.
Optional recovery from deceased’s legal heir
Such a recovery can be contested by a legal heir of the deceased borrower as well but must be made up for with repayment responsibility assumed by such heir. A lending institution cannot, however, force the heir for recovery in any case, which the latter can contest to be limited to their inheritance from the deceased.
In case there is no recourse to recovery available, whether voluntarily from the surviving relatives or involuntarily, the lender ultimately declares the deceased borrower insolvent without any resolve.
In case such an unfortunate incident leaves you as the surviving kin of a deceased borrower, and you decide to borrow money online for repayment, make sure to assess your eligibility for the advance. Note that such repayment is accounted for as your repayment in your credit history, thus impacting your credit score. You may thus want to make sure that the outstanding from the deceased is repaid in full while the EMIs on your new loan meet their due dates without fail too.