What are your rights if you can’t repay a loan

What are your rights if you can’t repay a loan?

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14 Nov 2019

Taking a loan can be a significant financial decision, so it’s best to make it a smart one by knowing why you need to borrow money is the most critical factor you need to consider. Borrowing money can either help you or hurt you depending on how you manage it. If you can’t make your loan repayments, it’s best to take action as soon as possible. Quick actions help you minimize the damage caused to your finances. So, let’s have a look at several strategies that can help you stay on top of such situations.

What happens when you don’t repay the loan?


If you stop paying up your loan, you eventually default on the loan. This will cost you more money as penalties, fees, and interest charges might build up on your account. Your credit scores may go down and recovering the lost credit scores may take several years, which means you can borrow again sometimes within just a few years. If the situation gets intense you will need to pay attention to legal documents and requirements to at least appear in court. These documents might help you in justifying your case in court. However, when facing the loan default, you do not have to surrender all rights to the asset and fair treatment.

Here are the rights if you cannot repay loan

  • Right to adequate notice

When the repayment of the loan is overdue by 90 days, the borrower’s account is classified as a non-performing asset (NPA) in such cases, the lender has to first issue a notice period to the borrower. When the borrower fails to repay within the 60-day notice, the bank will start the sale of assets. But the bank has to serve another 30-day public notice before putting up the assets for sale.

  • Right to fair valuation of assets

Before selling the assets, the lender has to provide a notice specifically mentioning the fair value of the asset, along with the reserve price, date and the time of auction. If the borrower feels the value of the asset is undervalued, you being a borrower have the right to look for a new buyer and introduce them to the lender in case you feel the asset is undervalued.

  • Right to balance proceeds

Even if your asset is repossessed you have the right to monitor the process of your assets auction. Lenders are bound to refund any excess amount realized after recovering their dues. You have to ensure that you get any excess money acquired as it legitimately belongs to you.

  • Right to humane treatment

Lenders do engage recovery agents to pressurize borrowers into repaying their loans. However, the agents cannot cross the line that banks have agreed upon as part of their code of commitment to customers. These third-parties can contact defaulters either at a place specified by the latter, residence or workplace. Moreover, they can make such visits at the borrowers place generally between 7 am and 7 pm. They cannot violate the norms of decency and civil behavior during these visits. In case the agents attempt to intimidate or humiliate the borrowers or their family members, the latter can raise the matter with the lenders and finally, the banking offices.

  • Credit counseling

Getting credit counseling will help you understand your situation and come up with a new perspective to solve it. Credit counseling provides guidance and support on your credit, money, debt management, and budgeting. The objective of most credit counseling is to help a debtor avoid bankruptcy and to provide primary financial education on money management. Many counseling services also negotiate with creditors on behalf of the borrower to reduce interest rates and late fees on their loans. Depending on your situation, your counselor may suggest a debt management plan for you.

  • Public assistance

You can make use of public assistance facilities in many areas. Local utilities, the government, and others provide guidance to people who need help paying their bills. These programs could provide enough relief to help you in managing and to stay on top of your loan repayments.

Moving Forward

Let’s talk about a long term plan to stay on top of your loan repayments.

An Emergency Fund: It’s essential to have emergency savings, some extra cash helps you to avoid problems. You don’t need to borrow when you need financial help, and you can pay bills with ease. The primary challenge is to build your emergency fund, for such emergencies. This can be done by spending less than what you earn.

Understand your finances: You need a firm grasp on your income and manage your expenses by cutting down any unnecessary spending. Keep a track of every penny you spend for at least one month the longer the better. Also, include expenses you only pay yearly, such as property tax or an insurance premium. Getting a hold on your financial decisions will create a good habit of smart spending and saving a lot of money.
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