Default on a loan: What to do?


#1

Due to various reasons, many people can’t meet the demand of a loan, can’t pay their payments of the loan on time and it is a common problem now days. What steps can we take that time

Are there any other steps, which are missing here?


#2

Hi Sanjay,

There are many steps that you can take in case you have defaulted on a loan. Some of them are:

 Rescheduling your debt: After having analysed your financial position, if the bank feels that the quantum of the EMI is what is troubling you, they may be willing to reschedule your debt by extending the loan tenure. That will bring down the monthly EMI commitment, though it will mean more interest outgo in the long-term. However, you should consider the immediate relief it can bring to your current situation. When the tide turns and you are facing better times you can try negotiating with your bank and revert to your old or higher EMI or even prepay your loan. Closing your loan early can help to save excessive interest outgo as long as the bank doesn’t levy a heavy prepayment penalty.

 Deferring the payment: If your financial situation is such that there is likely to be a jump in cash flow going forward because of a change in job or any other reason, you may seek temporary relief from the bank for a few months. The bank may permit the same but may charge a penalty for not paying within the time frame agreed upon earlier.

 One-time settlement: If you express your desire to pay back and notify the bank about your current financial condition, banks may be willing to give you the option of a one-time settlement. Please note that this will be done on a case-to-case basis. This is a good way to get rid of your loan if you have some money. Usually the settlement amount lower than the original amount you would have had to pay. i.e. the bank may waive off some amount or charges. If your financial situation is really bad, then you may need to file for bankruptcy to free yourself from the loan commitment.
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Since loan defaults can affect your Credit Score, it is best to ensure timely payment of your loans or at least settle things with the bank as soon as possible.

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Cheers,
BB Expert