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Who Repays Loan And How, After Death Of A Borrower – Home Loan, Car Loan, Personal Loan

By Amit - September 23, 2022

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It should be noted that the transfer of liability depends on the type of loan and the item pledged against the loan amount.

In case of a personal loan technically called an unsecured loan, the bank cannot ask the legal heir or the surviving members of the deceased debtor’s family to clear the dues.

There is no mortgage involved in such loans, so the bank cannot forfeit and sell any property of the debtor for recovery. The outstanding amount is eventually written off and added to the NPA account by the bank. However, if there is a co-applicant in the loan, then after the death of the principal debtor, the bank can transfer the liability of the loan to that person. The same applies to other unsecured loans, including credit card debt.

However, at present, most of the unsecured loans also carry insurance for the principal debtor, which covers the entire loan amount and is valid for the entire repayment period of the loan.

In an unfortunate event like the death of the principal debtor, the outstanding amount of the loan can be recovered through this insurance. Usually, the premium for this type of insurance has to be paid by the borrower only.

In home loan cases, if the principal debtor dies before the loan is repaid, the bank usually looks for a co-applicant in the loan, and if the co-applicant cannot repay the loan, the bank will then follow up with the principal debtor. Contacts the family members, legal heirs or guarantors of the

If any one of them accepts the responsibility of repaying the home loan, the bank returns the said property to its owners. But, if no one gives an assurance to clear the outstanding amount within the stipulated time period, then the bank can proceed to seize the property and sell it for recovery. In such cases, the legal heir of the debtor can approach the bank and request for restructuring of the loan.

In the event of the death of the debtor, when a car loan cannot be repaid, the bank asks the legal heirs of the debtor to repay it. If the legal heir refuses, the bank can confiscate and auction the car to recover its dues.

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