Mr. Asthana has not been able to pay his car loan EMIs for the last two months as he lost his job a couple of months back. Now he is worried that he may have to lose his car or worse still suffer humiliation at the hands of recovery agents.
When you take a loan, you are obligated to pay EMIs and there might be instances when despite the best intentions things may not go as planned and the borrower is not able to repay his/her dues. In such a scenario it is important to be aware of your rights even if you have defaulted.
As we said above, despite planning well and not intending to, there might be instances when you miss your EMIs. This obviously will put you on a loan defaulter list and though you are obligated to pay the lenders but you as a borrower still have rights which are discussed below:
The lender is obligated to give the defaulting borrower adequate time to act before the recovery process is initiated. When someone fails to pay the dues for 90 days, the lender has to send a notice for further 60 days and start any proceedings only after that period also lapses. If one checks the credit report then they would see that dues that remain unpaid for more than 90 days are classified as NPAs.
Not all defaults are made deliberately; there can be genuine reasons like job loss, some medical or other exigency and so on. If the defaulter wishes to make his/her representation to the lender and explain that he may pay in the near future or make an objection to the repossession notice the bank officer must reply within 7 days to this representation.
We often hear about incidents of harassment and misbehavior by recovery agents when a borrower has defaulted on his/her loan. Banks are regulated by RBI and there are laid down procedures by the RBI for dealing with the recovery process. The recovery agent can contact the defaulter at a place chosen by the latter, they agents can visit the borrower’s work place or home too but they must respect the borrower’s privacy and must visit them at decent hours. Agents cannot intimidate, humiliate of harass the customer or their family members.
In case of a secured loan, the lender can repossess the asset and sell it to recover the loan amount. However this can be done with the consent of the borrower and if the borrower feels that asset is being undervalued he/she can object to the sale. The borrower can look for a suitable buyer who is willing to buy the property at what seems a fair value to the borrower.
It is important for the borrower to remember that even if they have defaulted and the asset may be sold they still have a right over the asset. The lender is obligated to give the balance proceeds to the borrower. This is the amount that remains after recovering the dues and also the expenses made for the process, once the asset is sold. It is very important that the defaulter be aware about this aspect especially in cases of home loans where the property values go up and the borrower can get substantial amount even after the loan is repaid.