Loan Repayment Rules: If there is no guarantor in the loan, the bank can approach the legal heirs of the deceased such as spouse or children. However, the heirs are not responsible even for their own personal property. They can be liable to repay the loan only to the extent of the inheritance or property received from the deceased.
Loan Repayment Rules: If a person has taken a loan from the bank and he dies, the loan does not automatically expire. In such a situation, the bank first checks whether there is any guarantor, co-borrower or co-applicant associated with the loan or not. If there is a co-applicant or guarantor, the bank may contact him to clear the outstanding amount.
What is the responsibility of the legal heirs?
If there is no guarantor in the loan, the bank may approach the legal heirs of the deceased such as spouse or children. However, the heirs are not responsible even for their own personal property. They can be liable to repay the loan only to the extent of the inheritance or property received from the deceased. The bank cannot forcibly recover the loan from the heir’s personal earnings or his own property.
Loan insurance provides relief to the family
While taking loan, many banks offer the option of credit shield or term insurance. If the borrower has taken such insurance and his death is covered under the terms of the policy, then the insurance company can make payment of the outstanding loan to the bank. This reduces the financial burden of debt on the family and in many cases the property can also remain safe.
Bank’s right on mortgaged property in secured loan
In a secured loan like home loan, car loan or mortgage, an asset is mortgaged to the bank. If after the death of the borrower, the family does not repay the loan and there is no insurance, then the bank can take action against the mortgaged property under the legal process. The property can be sold or auctioned to recover the outstanding money. After the auction, the remaining amount after repaying the loan can be given to the heirs.
What is an unsecured loan?
In unsecured loans like personal loans and credit cards, there is usually no collateral collateral. If the borrower dies and there is no co-applicant or guarantor, the bank cannot recover directly from the personal property of the heir.