What Are Your Legal Rights After Defaulting on A Personal Loan?

Defaulting on a personal loan does not sound good.

But you have legal rights to take control of the consequences.

Personal loan is a highly common loan borrowed in India by those in need of funds, sometimes facing an emergency situation related to health, education, home renovation or marriage. However, it also necessitates that you pay back the whole sum with interest through EMIs that are payable every month. When you fail to make these payments, you can come to be defaulting the loan. This can be fearful as it gives rise to a legal matter. There are ways to handle the situation without bearing too much loss.

Note that defaulting a personal loan may not be referred to as a crime straightaway but to ignore being financially responsible can cause you heavy losses now and even in the future.

Defaulting on a Personal Loan

We may sometimes miss paying a few EMIs and this can cause stress as the situation results in legal notices and calls from the authorities.

While fearing is never an option, you may also know that there are legal rights with you too for support.

The Indian Law has some flexibility for those missing some EMIs. And you need not fear going to jail or getting your property snatched away.

What Really Happens?

You are said to have defaulted on a personal loan when you fail to pay the EMIs for over 90 days. This leads to your account to get marked as an NPA or a non-performing asset.

This leads to the starting of the following:

• Recovery agencies calling you several times a day
• A legal notice from the bank
• Reduction in your credit score or the CIBIL score, which needs to be high enough to be allowed loans and credits in the future
• Late fees charged
• Interest addition

These happen because the bank starts with its recovery process. At this point, you need to know your rights to protect yourself.

You may also like "Small EMIs or Quick Freedom—How to Choose Personal Loan Repayment Tenure?"

Legal Rights Under the Indian Law After Defaulting on A Loan

You Must Be Sent a Proper Notice

The bank cannot take a legal action or file a case without sending you a written notice beforehand. While they cannot even show up or harass or threaten you, they also need to go as per the defined legal process under the Indian Law.

Moreover, you have the right to reply when being sent a legal notice using your legal guidance to your side.

Harassment is Illegal

While the recovery agents can give you calls for certain details, they are not legally allowed to humiliate, threaten or harass you at all. There are rules by the central bank, the Reserve Bank of India, which say, that you can be contacted by them but only between 7 am and 7 pm. And they further need to be respectful.

Breaking of laws on their part can let you as well send a legal notice and filing a complaint right-away against them.

You Have the Option to Request Settlement

When dealing with the defaulting situation, you can request a loan restructuring or another option of OTS or One-Time Settlement. Banks also are open to negotiations. Note that they will be especially supportive when there have been genuine reasons on your side. These can be joblessness or the need of medical expenses.

You will need to reach them out with proper legal documentation for protecting all your rights during settlement.

Defence While in the Court

If the bank ends up filing a civil suit for recovering their money from you, often as per the Order 37 of CPC (Civil Procedure Code), you can appear there in the court with a legal reply filed for your interest protection.

This all contributes to negotiations and prevents blind judgments being passed.

Don't miss this! "How Does a Personal Loan Rejection Affect Your Credit Score?"

Final Thoughts

If default on a person loan has been made, worrying will not help, but how you react to the situation will decide the future consequences. You need to manage the matter in the legal way and with appropriate, genuine reasons. Take legal help to know all your rights as a defaulter on personal loan for clarity.

As said, defaults can occur, but what is most-destructive is being financially irresponsible at all times.

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