Personal Loan Rules: Life is unpredictable, and unexpected events can sometimes lead to financial stress for families. Personal loans can be a lifeline during times of need, but a lack of understanding of the associated rules often leaves many questions unanswered. The biggest question arises when the borrower dies suddenly while the loan is still outstanding.
Why is a Personal Loan Different?
📌 Also Read: Money Saving Tips - Your Wallet Gets Empty Up to 20th Date, Know 4 Easy Ways to Save Money Here
A personal loan is an unsecured loan, meaning the bank does not hold any collateral against it. Unlike home loans or car loans, where the bank can seize the house or car, this is not possible with a personal loan. This is why the rules and recovery process for this type of loan are different.
Read Here: SUV Comparison 2026 – Performance, Safety and Long-Drive Comfort
📌 Also Read: Middle Class Can Build ₹1.2 Crore Wealth in Just 10 Years – Here’s How
What does the bank do in case of death?
Upon receiving information about the borrower’s death, the bank first checks whether loan protection insurance was taken out with the loan. If such insurance exists, the bank files a claim with the insurance company. The insurance company pays the outstanding amount, and the family does not face any difficulties.
📌 Also Read: GST Collection Rises 6.1% in December - Refunds Jump 31% - Read Details
Whose responsibility is it if there is no insurance?
If no insurance was taken out on the personal loan, the bank looks to the co-applicant or guarantor. According to the law, the co-applicant is fully responsible for repaying the loan. In such a situation, the bank can demand payment from them and, if necessary, take legal action.
📌 Also Read: Good News for NPS Investors - More Benefits on Investment and Retirement
Does the family have to repay the loan?
Generally, the bank cannot directly demand repayment from the deceased’s family. However, if the borrower’s assets, such as bank accounts, fixed deposits, shares, or property, have been inherited by the heirs, the bank can recover the outstanding amount up to the value of those assets. They cannot demand more than that amount.
📌 Also Read: Forgot your ATM Card at Home? Now Withdraw Money Using Your Phone, Learn the Easy Way
Read Here: Investment Tips – Not Just FDs – These Investment Options Offer Better Returns
When does the bank have to write off the loan?
📌 Also Read: How Much Interest Do MIS, NSC and Kisan Vikas Patra Offer at Post Office? See 2026 List
If there is neither a co-applicant nor a guarantor, and the deceased’s heirs have not inherited any assets, the bank has no option but to write off the loan. In such cases, the family has no legal responsibility.
This decision provides security to the family
📌 Also Read: Post Office 'Dhaasu' Scheme: Invest Once and Get ₹4.5 Lakh Returns, Check How to Apply
It is crucial to understand all these aspects when taking out a personal loan. With the right information and proper planning, not only the borrower but also their family can avoid future financial difficulties.