What happens to a personal loan if the borrower dies?

2 min read

The lending sector of India follows specific rules and guidelines in terms of recovering loans. These rules are different for secured and unsecured credits. On the other hand, many families are unaware of what happens to a personal loan after a borrower’s death, for instance.

There is no such regulation that states the recovery process of unsecured credit like a personal loan. However, different lenders have their clauses mentioned in personal loan documents regarding what should be done to a personal loan if a person dies in the middle of a tenor.

To know more about them, check out the sections below!

How do lenders recover a personal loan after the death of a borrower?

Unlike secured loans, lenders cannot ask the legal heir or other surviving members of a deceased borrower to repay the outstanding personal loan amount. Since this credit does not include collateral, lenders cannot seize a physical property and sell it to recover funds.

In such cases, lenders usually write off the outstanding balance and add it to the NPA account. Similarly, the family members should also know what to do in the unfortunate event of the death of a personal loan holder.

In a different scenario, if a co-applicant or co-signer is involved with a personal loan, that individual is liable to pay the outstanding amount after the death of the primary personal loan borrower.

However, there is no such rule that mandates a legal heir of a deceased borrower to repay the due amount. Or take possession of his/ her property.

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 in the middle of a tenor, the borrower's family should also know the procedure they need to follow. This includes-

  • Informing the lender about the borrower’s demise
  • Requesting the lender to settle the outstanding loan amount

Thereafter, the lender will check the following:

  • If the borrower has a personal loan insurance policy and if there is any co-applicant involved
  • If the personal loan is only in the borrower’s name, the lender will then initiate the NPA process

Thus, it is wise to read the papers related to a personal loan before proceeding further. Bajaj Finserv offers a personal loan with 100% transparency. Read the terms and conditions carefully before applying.

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