When an individual who has a loan on him passes away with an outstanding amount, it raises several critical questions about the repayment of such debt along with the future course of responsibility for clearing the pending amount.
That is why understanding the financial and legal consequences about debt repayment post the demise of an individual is crucial for the deceased’s family and relatives. It can help them in gaining knowledge and dealing with the challenges thrown at them by the concerned authorities in such a situation in an efficient manner.
Loan repayment responsibility after borrower’s demise
It has been observed that in India, personal loans are mostly unsecured i.e., they are not backed by any form of collateral. That is why if a personal loan borrower dies then the responsibility for repaying the left out outstanding loan amount doesn’t automatically transfer to the family members or legal heirs until and unless they are guarantors or co-applicants.
Still, it is important to remember that lenders can claim repayment of loan from the deceased’s property i.e., estate, this includes assets such as: property, gold ornaments, savings or past investments. The legal heirs on their part are obliged to repay the personal loan debt only to the extent of the total inheritance they have received. Now for complete clarity on this issue it will be prudent to reach out to a qualified lawyer who can guide you through the entire process.
Steps for discussing and settling outstanding personal loans
- Discuss with the lender:The family and associates of the borrower should promptly inform the lending institution of the borrower’s demise. This should be done along with providing necessary documents such as a death certificate, PAN details etc. This also helps in opening up a new channel of communication with the lender for getting queries resolved in a seamless manner.
- Follow up and check the outstanding debt:To understand the total debt taken along with the left over amount that needs to be repaid along with the interest you should request for a detailed statement from the concerned lender. This statement will clearly outline the remaining loan balance, accrued interest (if any), along with any penalties or late payment fines imposed on the borrower etc.
- Evaluate the assets of the deceased: Discuss with experts, tax consultants and then determine the value of the deceased’s estate to decide on the available resource for structuring efficient debt repayment.
- Reach out to the lender: Reach out to the lender in person, engage the concerned team in result based discussions to explore the possible settlement options that may include restructuring the debt, planning on payment on a future date or even negotiating and reaching on a lump sum payment. This can make things transparent and help in closing out the debt efficiently.
- Utilise the insurance policies of the deceased: Follow up and check if the deceased had a life insurance policy. If there was a life insurance policy availed by the deceased then the proceeds of the same can be used to clear out the outstanding loan. A lot in this regard will depend on the technical terms and conditions of policy availed by the deceased. For clearing doubts regarding the same reach out to an efficient lawyer.
Understanding the significance of guarantors and co-signers
If a personal loan application had a guarantor or a co-signer, then they naturally become responsible for the repayment of the remaining debt on borrower’s demise. This goes according to the terms and conditions of the loan contract. That is why it is always prudent to be completely aware of the rights, duties and obligations associated with co-signing or guaranteeing a loan.
What are some preventive measures for the borrower’s family?
- Protection insurance for loan: Now consider obtaining insurance policies that can cover the cost of outstanding loan amounts. Especially in unforeseen and difficult circumstances, this will provide much needed financial support and security in adversity.
- Clear and updated documentation: Focus on maintaining step by step documentation that is clean, clearly signed and has all the financial obligations along with related documents to help and facilitate efficient management if unplanned, difficult situations arise such as a sudden demise of a loan borrower or a life altering accident etc.
- Planning of Estate: Get on with a frank and comprehensive estate planning discussion. This will help in providing clear direction for asset distribution and settlement of debts, thus minimising potential disputes and any future legal ramifications.
Hence, by promptly discussing and addressing these challenging aspects, families and associates of the deceased can mitigate the financial impact of a borrower’s untimely demise and help in ensuring a smooth transition during difficult times.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
