Loan default: With digitalisation, getting credit is now easier and faster, offering convenient access to financial resources for borrowers. However, this ease has led to more defaults, worrying lenders. Borrowers may face stressful situations, such as being unable to repay loans, especially with auto loans where vehicles may be seized. To ensure fairness, the Reserve Bank of India (RBI) has introduced a Fair Practices Code to protect borrower’s interests. Despite defaulting, borrowers still have legal rights that lenders must respect.
Here are four important rights for defaulting borrowers to ensure a smoother process.
1)Mayank Khera, Co-Founder & COO, of Credgenics emphasized that the Right to Notification prevents defaulting on loan repayment from being considered a criminal offense, except in cases of fraud, breach of trust, or as specified by the law. He further explained that when a borrower consistently misses EMI payments, the lender has the authority to systematically inform them. Typically, banks or financial institutions are required to give the borrower reasonable notice to fulfill their payment obligation. If the borrower still fails to meet the repayment deadline, the bank or lender can proceed with selling the asset after providing reasonable notice or as mandated by the law.
2)Defaulting on loan repayment isn’t a criminal offense unless for fraud, breach of trust, or as per the law.“If a borrower repeatedly misses EMI payments, lenders maintain the right to inform the borrower systematically. Typically, banks or other financial institutions are mandated to provide the borrower with reasonable notice to fulfill the payment obligation. Should the borrower still fail to meet the repayment deadline, the bank or lender is then permitted to proceed with the sale of the asset after giving reasonable notice or as per applicable law,” explained Mayank Khera.
3)When a borrower’s vehicle is seized due to loan default, it’s crucial to ensure a fair valuation of the assets. In many cases, the assessed value of the asset surpasses the repayment amount. “To maintain fairness, the Reserve Bank of India (RBI) has established guidelines to ensure equitable asset valuation processes, promoting transparency and fairness for all parties involved,” said Mayank Khera.
4)If a borrower defaults and lenders try to repossess the vehicle, the borrower has the right to ensure that specific legal procedures are followed. “This includes lenders obtaining a court/arbitration tribunal order or complying with relevant repossession laws to protect the borrower’s interests. Furthermore, borrowers can regain ownership of the vehicle by paying off the remaining loan balance, along with any repossession and storage fees, before the vehicle is sold,” added Mayank Khera.
It’s essential for borrowers facing auto loan defaults to be aware of their rights and to seek legal advice if they believe their rights have been violated.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 04 Apr 2024, 12:52 PM IST
