Loan: In the event of the borrower’s death, the bank will initially seek to recover the outstanding loan from the guarantor or co-borrower. For secured loans, the bank has the authority to liquidate the mortgaged asset. If the loan is insured, the insurance company will cover the equated monthly installments (EMIs).
However, what happens if you pass away unexpectedly? Will your family face undue pressure from the bank, or will the loan be forgiven? Let us address this matter candidly today.
If you designated someone as a guarantor when securing the loan, the bank will first approach that individual for repayment. This means that even if the guarantor did not directly benefit from the loan, their signature on the agreement obligates them to bear the consequences. Therefore, it is crucial to carefully consider the implications before agreeing to be a guarantor. In cases where the loan is secured by assets such as a vehicle, real estate, or gold, the bank will proceed to seize those assets. For instance, in the case of a home loan, the bank may auction the property; for an auto loan, the vehicle may be repossessed; and for a gold loan, the gold may be sold at auction.
Affects on family
This raises the question of how this situation affects the family. If there is a co-borrower, that individual is responsible for continuing the EMI payments. In the case of secured loans, if the property is inherited by the family, the outstanding loan must be settled first. Conversely, for unsecured loans, such as personal loans or credit card debts, the bank cannot exert direct pressure on family members. If the bank is unable to find a resolution, it may resort to legal measures, including selling the property under the SARFAESI Act, initiating court proceedings, or claiming other assets belonging to the borrower.
Think carefully before take loan
It is essential to think carefully before agreeing to be a guarantor. If you are taking out a loan, consider obtaining insurance as well. Thoroughly review the bank’s terms and conditions to avoid future regrets. Therefore, the next time someone suggests, “Take a loan with easy EMIs,” remember that such situations can arise even after one’s passing.