We live in an era where buying and selling of goods are often on credit. The easy availability of loans looks like the perfect opportunity to fulfill all your dreams in a short time. Many people take loans from the bank in order to possess an asset which they cannot do it with their present income. There are various kinds of loans available such as housing loans, car loans, educational loans etc. The banks give out these loans and the person pays regular EMI’s to slowly pay the debt taken from the bank. However, since we live in a fast moving world it is possible that we are caught up in some unfavorable circumstances and are unable to pay the loan to the bank. In such a case there are various solutions that your bank will provide you. Understanding of these solutions forms an important part of your banking awareness section in an IBPS exam and we are here to provide you with the same.
IBPSBankersAdda.org.in has the latest IBPS banking awareness 2015 and the banking awareness PDF downloads are also available for our readers. Read further to know about what banks do in case of a loan default.
Banking awareness: What happens in case of a loan default?
Banks adopt various methods to provide you with the solution to your default. Banks understand that there can be genuine problem for a customer incase he/she is unable to pay the loan and various options are provided to you. Below are the ways banks deal with a loan default:
1. Rearrange your debt:
The bank will analyze your financial position and in case paying of EMI is your problem then the bank may be willing to rearrange your debt by increasing the loan tenure. When this is done, your monthly EMI commitment will be reduced thereby making it easier for you to pay the rate of interest. It can however lead to an increase in the interest paid on loan.
2. Postpone of payment:
In case you are having temporary financial troubles and are sure to be in a position to pay the loan in the future then it is possible that the bank may provide you with some additional months for the payment of loan.
3. One time settlement:
If you wish to pay back the loan at once and wish to free yourself from loan commitment then the bank may be willing to enter into a onetime settlement in which your loan will be settled for a comparatively lesser charge as the extra charges will be ignored by the bank. This is a good way to deal with loans in case you have some extra cash lying around and you wish to get rid of the loan once and for all.
4. In case of unsecured loans:
In the case of unsecured loans banks tend to be a bit strict. In such a case, the borrower can offer to convert the unsecured loan into a secured loan and this can be done by offering a security. Once this is done, the rate of interest and EMI may be brought down.
What if none of the above options work out?
In case your financial position is very dreadful and none of the above options work then the bank has no choice but to forfeit the asset for which the loan was taken. This is the only way left with the bank to recover their dues. In case the loan is not for an asset but for a service for example an educational loan, then the bank will wait for two months after that it will issue a notice to the borrower to repay the loan as soon as possible. Once the borrower does not pay the loan after the period mentioned in the notice is expired, the borrower would be contacted and the asset that has been offered as security may be taken into possession.
We hope we were able to help you with updating your banking awareness and brought you one step closer to your ambition. All the best readers!