‘Saving for the Rainy Day!’ is an old adage in every Indian household. We are taught to be very disciplined when it comes to money management. However, modern situations require us to seek out loans to fulfil various financial obligations like buying a home, paying for children’s education, marriage, buying a car or two-wheeler, medical emergencies, and many more.
We have every intention to repay the loan. Nevertheless, unexpected circumstances like job loss, economic distress or ill-health may result in financial troubles. When you discontinue your loan repayments, you are labelled a ‘Loan Defaulter’ and the lender initiates the ‘loan recovery’ process.
You don’t have to panic in such circumstances. The loan recovery process has specific legal procedures to be followed by the lender too. They have to first give you notice about the initiation of the recovery process. They have to give you an opportunity to present your case and try to resolve the issue amicably. There are a few other rights that you can exercise as the borrower.
Right to Ample Notice
A loan is declared an NPA (Non-performing Asset) when no repayment is received against it for more than 90 days. The lender sends a legal notice to the borrower and gives him a period of 60 days to repay the amount. If the borrower has not paid even during this 60-day period, the lender can proceed with the sale of the asset for debt recovery. Then too, the lender should give a 30-day notice to the borrower before the asset can actually be declared for sale.
Right to Ensure Fair Value
Once the asset is declared to be sold, the lender approaches the bank surveyors to value the asset. Once the asset has been valued, the lender should inform the borrower about the evaluated value. If the borrower feels that this value is low, they can object to it and seek re-evaluation of the asset.
Right to be Heard
During the notice period, you have the right to object to the repossession notice sent by the bank. Within 7 days, the authorized officer must reply and inform you if your objections have been accepted or denied, giving valid reasons.
Right to Balance Proceeds
In case your asset is valued and sold for a value higher than your loan outstanding, you have the right to claim the balance proceeds. After recovering their dues, lenders are obliged to refund any excess sum realized. You have to make sure that, since it legitimately belongs to you, you get any and all excess funds acquired.
Right to Humane Treatment
Banks cannot indulge in unpleasant treatment of the borrower during the loan recovery process. They may not threaten the physical or mental wellbeing of the borrower at any point in time during the entire process. If the borrower feels that he is being treated unfairly, he may approach respective authorities for action against the lender.
How can I avoid a loan default?
The key factor to avoid loan defaults is to plan your finances smartly. Take stock of your assets and liabilities before you opt for a loan. Your repayment capacity plays an important role too. Here are some steps you can take to have a good loan repayment record:
- Opt for a longer repayment tenure so that your EMI amount is less.
- Talk to your bank about restructuring your loan. This may give you some relaxation with respect to the terms and conditions of the loan.
- Make part pre-payments whenever you receive any surplus money like a bonus at work, inheritance, gifts from friends and family, etc.
- Go for debt settlement if you realize that you cannot afford any more EMIs. This may have a negative impact on your credit score so choose this option only as a final resort.
During the entire loan recovery process, the lender is obliged to keep the borrower informed about the steps taken towards the recovery. The borrower can ask for a detailed report on the severity of default, interest charged and other fees levied by the lender. Just because you failed to repay the loan amount, you are not a criminal. You can exercise all your rights as a legal party to the whole process.