loan repayment after borrower death: In today’s time, whether it is a car or a new mobile phone, buying everything in installments has become a common thing. People also take loans from the bank to fulfill their needs so that the cost of expensive goods can be easily borne. But whenever the bank gives a loan, it does so after a lot of thought. The bank sees how the person’s income is, what is his credit history and whether he will be able to repay the loan installments on time or not. This assures the bank that its money will be safe and there will be no problem in repaying the loan.
But what happens if the person who took the loan, who was paying that loan, dies in the middle? That is, who will pay the rest of his loan after his death? This question arises in the mind of many people. Does the bank waive off this loan? Will it put any burden on the family? We understand the answers to all these questions in detail here.
When the loan taker dies, who is responsible for the loan?
First of all, it is important to know that if a person dies in the middle of the loan, then the bank cannot directly ask for the loan from any member of the family after his death. This does not mean that any member of the family automatically becomes responsible for paying the EMI of that loan. Actually, the bank first sees whether the loan taker had made a co-applicant or guarantor at the time of the loan. These are the people who have agreed for that loan that they will also take responsibility of the loan if the person taking the loan is unable to repay it. Therefore, the bank contacts those people first.
What do the bank rules say?
When a loan taker dies, the first thing the bank does is send a notice to the co-applicant. This happens in the case when the loan is part of a joint loan like home loan, education loan or joint loan. If the loan is in the name of the co-applicant, then he has to repay the remaining amount of the loan. If the co-applicant is also unable to pay the loan, then the bank contacts the guarantor of that loan. The guarantor is the person who has given a guarantee for the loan that if the loan taker is unable to pay, then he will repay the loan.
Now if the guarantor is also unable to repay the loan, then the last option left with the bank is – it auctions the property or mortgaged things of the loan taker. The bank recovers its loan from whatever money is received from this auction.
Does loan insurance help?
If the loan taker has taken any insurance along with the loan, then it is a matter of great relief. Loan insurance is such that if the person taking the loan falls ill or dies, then the insurance company pays the remaining EMI and interest. This neither puts a financial burden on the family nor does the bank suffer a loss. Therefore, nowadays banks and loan giving companies also often advise to get insurance along with the loan so that in case of an untoward incident, no one faces any problem.