Know what happens to a personal loan if the borrower dies

Know what happens to a personal loan if the borrower dies

When a borrower passes away, the personal loan after death is handled according to the lender’s policy, often settled through insurance or by the borrower’s legal heirs.
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In India, there are specific rules and guidelines that lenders follow regarding loan recovery when a borrower passes away. Many families are unsure about what happens to personal loans when the borrower dies in India. Typically, if a person dies, what happens to personal loan depends on the lender’s policies and whether the borrower had insurance coverage. The outstanding loan amount may need to be repaid by the borrower’s legal heirs or settled through loan insurance, if available. Understanding these procedures can help families manage financial responsibilities smoothly during difficult times.


When someone takes a personal loan, they enter into a legal agreement that often includes a clause outlining the responsibility of their legal heirs or successors in the event of their passing. In the unfortunate event of the personal loan death of borrower, the liability does not simply vanish.


If a person takes loan and dies, the outstanding amount may need to be settled by the nominee or legal heirs. Lenders usually try to recover the unpaid dues through the borrower's estate or, if available, through a loan protection insurance plan. This process helps reduce the financial burden on the borrower’s family.


Understanding how liability is handled in such cases is essential, especially when planning finances or taking a loan. To learn more about your rights and obligations in such scenarios, refer to the detailed sections below.

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Recovery of loan after death of principal borrower

When a borrower passes away, lenders initiate the recovery of loan after death of principal borrower using legal and financial procedures. One common concern among families is what happens to personal loan if person dies, especially if the loan was still active at the time of death.


In most cases, lenders first assess any collateral or security attached to the loan. If it’s an unsecured personal loan, the responsibility may fall on the legal heirs—but only up to the value of the estate they inherit. This means lenders can recover the pending loan amount from the assets or money passed on to the heirs.


For those who have taken a Bajaj Finserv personal loan after death scenarios are better managed if the borrower had opted for loan protection insurance. In such cases, the insurer may repay the outstanding dues, shielding the family from financial stress.


Being aware of this process helps both borrowers and their families plan ahead, ensure adequate protection, and avoid unexpected financial burdens during already difficult times.

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Role of co-applicants or co-signers

In case of a personal loan after death of the primary borrower, the co-applicant or co-signer becomes responsible for repaying the outstanding loan amount. Understanding who is responsible for personal loan after death helps ensure the loan is managed without burdening the borrower’s family. Co-applicants share equal liability and must continue repayments to avoid defaults.

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Procedure to repay personal loan outstanding after a borrower dies

Procedure to repay personal loan outstanding after a borrower dies

Now that it is clear what a lender does to a personal loan after the borrower's death, the borrower's family should also know the procedure they need to follow. This includes:

  • Informing the lender about the borrower’s demise
  • Continue with the repayment of the loan amount

In certain cases where the insurance policy is assigned as security, the lender will check and consider the feasibility of adjusting the claim proceeds against the loan outstanding dues.


Conclusion

Managing a personal loan if person dies can be tough for the family. In most cases, the dues are recovered from the borrower’s estate or through insurance. For a loan after death, repayment may be covered by loan insurance or legal heirs.

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Key offerings: 3 loan types

  • Flexi Hybrid Term Loan
  • Flexi Term Loan
  • Term Loan

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    You can pay interest-only EMIs for up to 24 months, after which, the EMI will consist of both, the principal and the interest. EMI is applicable only on the withdrawn amount.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Withdraw and prepay – no extra charges
    You can withdraw from your limit and prepay as many times as you want, without extra charges.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest on the loan amount you withdraw.

  • Flexi facility charges
    Flexi facility charges applicable based on your loan amount.

  • Amount disbursed in one go
    The entire loan amount is disbursed at the start.

  • Instalment pattern
    Fixed EMIs that cover both the principal and interest.

  • Flexi facility charges
    No Flexi facility charges.

Personal loan interest rate and applicable charges

Type of fee

Applicable charges

Rate of Interest per annum

10% to 31% p.a.

Processing fees

Up to 3.93% of the loan amount (inclusive of applicable taxes).

Flexi Facility Charge

Term Loan – Not applicable

Flexi variant - A fee will be deducted upfront from the loan amount (as applicable below)

  • Up to Rs. 1,999/- for loan amount less than Rs. 2,00,000
  • Up to Rs. 3,999/- for loan amount from Rs. 2,00,000 to Rs. 3,99,999
  • Up to Rs. 5,999/- for loan amount from Rs. 4,00,000 to Rs. 5,99,999
  • Up to Rs. 7,999/- for loan amount from Rs. 6,00,000 to Rs. 9,99,999
  • Up to Rs. 8,999/- for loan amount from Rs. 10,00,000 to Rs. 14,99,999
  • Up to Rs. 9,999/- for loan amount from Rs. 15,00,000 to Rs. 19,99,999
  • Up to Rs. 10,999/- for loan amount from Rs. 20,00,000 to Rs. 24,99,999
  • Up to Rs. 11,999/- for loan amount from Rs. 25,00,000 to Rs. 29,99,999
  • Up to Rs. 12,999/- for loan amount of Rs. 30,00,000 and above

*All the Flexi facility charges above are inclusive of applicable taxes

*Loan amount includes approved loan amount, insurance premium, and VAS charges.
Principal Holiday Facility Fees
  • Up to Rs.1999/- for loan amount less than Rs.2,00,000
  • Up to Rs.3999/- for loan amount from Rs. 200000 to Rs.399999
  • Up to Rs.5999/- for loan amount from Rs. 400000 to Rs.599999
  • Up to Rs.7,999/- for loan amount from Rs. 600000 to Rs.999999
  • Up to Rs.8,999/- for loan amount from Rs.10,00,000 to Rs. 1499999
  • Up to Rs. 9999/- for loan amount from Rs. 15,00,000 to Rs.19,99999
  • Up to Rs.10,999/- for loan amount from RS. 20,00,000 to RS.2499999
  • Up to Rs.11,999/- for loan amount from RS.25,00,000 to RS. 29,99999
  • Up to Rs. 12,999/- for loan amount of Rs.30,00,000 and above

Above charges are inclusive of applicable taxes & will be deducted upfront from loan amount

*(Loan amount includes approved loan amount, Insurance Premium & VAS Charges)

Bounce charges

Up to Rs. 1,200 per bounce.
“Bounce charges” shall mean charges for (i) dishonour of any payment instrument; or (ii) non-payment of instalment (s) on their respective due dates due to dishonour of payment mandate or non-registration of the payment mandate or any other reason

Pre-payment charges

Full pre-payment

  • Term Loan: Up to 4.72% (inclusive of applicable taxes) on the outstanding loan amount as on the date of full pre-payment.
  • Flexi Term Loan (Flexi Dropline): Up to 4.72% (inclusive of applicable taxes) of the total withdrawable amount as per the repayment schedule as on the date of full prepayment.
  • Flexi Hybrid Loan: Up to 4.72% (inclusive of applicable taxes) of the total withdrawable amount as per the repayment schedule as on the date of full prepayment.

Part pre-payment

  • Term Loan: Up to 4.72% (inclusive of applicable taxes) of the principal amount of loan prepaid on the date of such part pre-payment.
  • Not Applicable for Flexi Term Loan (Flexi Dropline) and Flexi Hybrid.

*Foreclosure will be processed post clearance of first EMI

Penal charge

 Delay in payment of instalment(s) shall attract Penal Charge at the rate of up to 36% per annum per instalment from the respective due date until the date of receipt of the full instalment(s) amount.

Stamp duty (as per respective state)

Payable as per state laws and deducted upfront from loan amount.

Annual maintenance charges

Term Loan: Not applicable

Flexi Term Loan (Flexi Dropline): Up to 0.295% (inclusive of applicable taxes) of the total withdrawable amount (as per the repayment schedule) on the date of levy of such charges.

Flexi Hybrid Loan: Up to 0.295% (inclusive of applicable taxes) of the total withdrawable amount during the initial tenure. Up to 0.295% (inclusive of applicable taxes) of total withdrawable amount during subsequent tenure.

Broken period interest / Pre-monthly Instalment interest

Method of recovery of "Broken Period Interest/Pre monthly instalment Interest" would be as follows:


EMI Date : 2nd

Scenario 1: If Loan is disbursed on 1st or post 10th of the month:

For Term Loan: BPI amount will be capitalised, i.e added to Principal amount on Due date / Deducted from disbursement
For Flexi Loans: BPI amount will be capitalised, i.e added to Principal amount on Due date / Added to first instalment

Scenario 2: If Loan is disbursed between 3rd and 10th of the month:
First instalment will consist of interest for actual number of days

Note: Additional cess if any, will be applicable to all charges according to state law.

*Terms and conditions apply.

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