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Well, many people tend to lose their sleep over the prospect of defaulting on the bank loan. However this is an issue that can be handled with perfect ease if poise is maintained and things are done correctly. So let’s make an attempt to understand this issue from two perspectives – 1. Consequences of loan Default. 2. How to handle it.

Consequences of Bank Loan Default

Bank Loan DefaulterWhen you come to a point, where you are not able to manage your finances properly and finally default on your bank loan , the banks tend to make a courtesy call to you reminding you about the non-payment. Subsequently when the borrower delays any EMI for a day or a week or even misses out to pay 1-2 EMIs, they start imposing a penalty. So as you repay your EMI, you would be asked to pay the defaulted EMI along with nominal late fee charges.

In some cases, the late fee charges are also waived off on a request. But when the things becomes difficult to manage by the bank officials and you miss out on more Emi payments and at the same time avoid speaking to the bank on this issue, the case is forwarded to the recovery Agents.

What should be your Role if you Default on Bank Loan

  • Call the bank before they call you - As has been mentioned in earlier posts, the first step in handling loan default if you have borrowed from the bank, is to call the bank and speak to them. So the first thing that you should do, if you see four finances going haywire, is call the bank and let them know of your situation.
  • Request for reduction of Interest - You should ask the bank to reduce the EMI or increase the tenure of payment. You may increase your EMI amount whenever you feel yourself to be financially unstable. Banks are flexible and may agree to your proposal expect in cases where your EMI paying tenure exceeds your retirement age.
  • Get the Loan refinanced – You can get the debt refinanced by other bank
  • Handle Loan Recovery Agents with Care – In case none of the things work out in your favor, and you are handed over to the recovery agents, take acre to handle the recover the agents adroitly. You should be first aware of your own rights and the RBI guidelines for loan recovery agents for this. (Please read our earlier post  Rights of Loan Defaulter in India for more details.)

    Speak to the recovery agents politely and don’t lose your temper as it may create a problem for you. Try your best to have repeated round of discussions with your bank .If the language of the loan recovery agent turns abusive; you may stop your conversation with him and look to talk to higher officials in the bank

As a borrower, you should be aware of the fact that it’s your duty to pay back the amount that you owe to the bank. As such you should make every attempt to pay back your loan. If you need to cut back your expenses, do that, if you need to refinance it debt, do it. But make it a point to avoid getting into a position where you would be defaulting on payment. And even after trying to avoid this, if you are in fix, then don’t keep things in dark. Take responsibility and don’t behave like a fugitive. Call on the banker and arrive at a common solution that works for both.

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