What happens to a Personal Loan if the borrower dies
Last updated: May 28, 2021, 03:56 AM ISTMany people plan their finances well in advance as life is very unpredictable. Unforeseen and unfortunate circumstances such as accident, injury or death of a borrower can cause a huge loss to the family. But what happens to the loan when the borrower dies. Who takes the responsibility of repayment? How do financial institutions recover their EMIs when a borrower doesn’t exist? All these are common questions that arise when a personal loan is taken but repayment is difficult as the borrower is no more alive.
Different financial companies have their own clauses in the personal loan document explaining what should be done when a borrower expires in the middle of the loan tenure. Generally, in such cases, the pending loan amount is paid by the legal heir of the family. In case, the deceased borrower has life insurance in his/her name, then the insurance company pays off the personal loan and no burden is placed on any family member of the borrower.
How do lenders recover personal loan after the borrower dies?Irrespective of the cause of death, the deceased borrower’s family or a co-applicant is the right source to approach for recovering the personal loan. A stipulated repayment period is sanctioned to repay the personal loan. If the loan is not paid off by the legal heirs, the lender has the right to seize the borrower’s physical possession, such as a property or a vehicle, and auction it to recover the personal loan.
What happens if the personal loan is in the name of the borrower?When there is no legal hire of the deceased and the personal loan is taken in the borrower’s name only, then the loan administrator will come into the picture to clear the liability. It doesn’t mean the administrator will shed money on his own, instead, the borrower’s assets will be used to clear the debt.
What is the procedure to repay the personal loan debt after the borrower dies?
- Inform the creditor/lender about the borrower’s demise, otherwise, the EMIs will be considered to be paid in a normal format.
- Request the lender about the full and final outstanding amount to be repaid.
- Check if the borrower has personal loan insurance or life insurance in his/her name. It can be used to pay off the debt.
- If there is no insurance, the loan administrator should check with the borrower’s family for possessions, any property or land they owned.
- If the assets are not enough to clear the debts, then the remainder will likely be written off only if the personal loan is in the borrower’s name.