Published:

11/02/2015 01:56am

All You Need to Know About Loan Repayment Default

Home loans are quite popular in India. Almost, everyone goes for it now-a-days. But you should be aware of the consequences of a loan default before applying for the same. Read on to know more.

Taking a closer look at the current property prices, it is very difficult for a buyer to purchase a house on full down payment. A home loan is one of the most sought-after loans at present. Besides, when you can avail taxation benefits such assection 80C and section 24, you should prefer the loan options for purchasing your dream home. Even though a housing loan can help you being comfortable while buying a house you cannot ruled out that there is a flip side too. It can become a liability for you in the long run if not managed properly.

Repercussions of a Loan Default

Managing a long term loan liability is an uphill task since in the present scenario when there is no job-security, and sedentary lifestyle has exposed us to many health issues. Moreover, you have got other goals and tasks too to fulfill apart from the loan repayment. Now the big question is what if you cannot repay the home loan. Since it's a long term liability and will require a tenure of 15-20 years to complete the repayment process, anything can happen during this time. Even if you have an insurance against your loan, the insurance will become effective only after the death of the debtor. Such circumstances can occur if you have wrongly gauged your future income or underestimated your future requirements. To be precise, you have not dexterously planned your loan repayments or destiny has been harsh on you. Whatever may be the reason, you should know what will happen if you could not repay your housing loan and how you can manage the situation. For that, you should understand the repercussions of not repaying your home loan beforehand. The very first thing that you should clearly note that any bank will not foreclose the loan even if you defaulted on one or two EMI payments. Foreclosure is the last option that a bank will exercise in case of a loan default. However, it is to be mentioned that if anyone continues to default for more than 3 months, then the bank is likely to seize the property. If you failed to pay 2 consecutive EMIs, they will send you a notice for payment. But after 3 consecutive months of loan default, the bank is going to treat your loan as NPA (Non-Performing Asset).

How You Can Manage?

After three months of continuous loan default, bank will send you a legal notice and ask you to repay the dues. If you still don’t repay, then after two months (i.e. five months from the first default) bank will warn you that it has valued the property for certain amount and will be auctioning the same. Auction date is usually set for a month after the notice date. Apparently, the bank itself does not intend to go through this cumbersome process of auctioning and wants to settle things as soon as possible. Having a closer look will make you realize that banks provide a period of six months before auctioning your property. You have the option to approach the bank within this period and try to settle the things with them.

You can manage this kind of situation though liquidating investments which you have saved for other goals. However, this would not be a good deal, as it can create obstacles for your other requirements. In this regard, you can meet the bank officials and put forth your condition to them as to why you are unable to pay the EMIs on time. If you can convince the bank authority, then bank might provide you with a moratorium period for some more months.

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