Best ways for borrowers to get out of a debt trap

Being in debt can be challenging and overwhelming. We take loans for the education of our wards, buying a home, a car or even for setting up our own business. If managed properly, borrowing will help you realise your dreams. However, mismanaged debts not only affect your financial well-being but can also cause immense mental stress.

Hyderabad: If you take a loan it has to be paid within a fixed period of time. In case of failure in payment, the banker will take appropriate steps to recover the amount in accordance with the law. And if the borrower dies during the repayment period, who will be responsible for paying the loan? It depends on the loan taken and the guarantee given. Let's find out how it works in different cases.

If something happens to the primary borrower, the bank approaches the co-borrower. If the co-borrower fails to pay, the bank will approach the guarantor or legal heirs of the loan. Suppose the person, who took a home loan, also took a loan cover term policy.. then the loan will be settled with the compensation given by the insurance company.

If the loanee takes a term policy, the compensation will be credited to the nominee's account. It is legally transferable to the heirs. No matter what the home loan or other debts are, the heirs have the right to pay them with the amount of the term insurance policy. If there is no home loan insurance, the bank does not recover the amount from the co-borrower, heirs, or guarantor. They will confiscate the property, sell it at auction and use the proceeds to pay off the debt. The excess amount will be given to the heirs.

In case the car loan borrower is away from the family, the bank will contact the borrower's family. If there are legal heirs and they want to keep the car with them, they can pay the loan amount to the bank. If they refuse to repay the loan, the bank impounds the car and recovers its loan. Personal loans and credit cards do not have any guarantee. When a person, who has taken such loans dies, it is not possible to recover this debt from the heirs or family members. If there is a co-applicant for the loan, the bank may try to collect their money. In the absence of co-borrower.. the debt is not collected in any way. There is nothing to do but recognise it as worthless property.

What should the heirs do? Suppose the bank has contacted the legal heirs and served the notice on them to pay the loan taken. In such cases, the heirs should first do a financial assessment. Calculate the value of the total assets and the amount of arrears to be paid. If the value of the property is more than the arrears, it is better to pay off the debts. If it is less, you can hand over the property to the bank and ask for recovery.

In the case of unsecured loans, the interest rates are high. In most cases, in the case of unsecured loans, adding a co-borrower reduces the interest rate. Because it reduces the bank's risk to a great extent. It is always better for the borrower to take adequate insurance coverage for the loan. It protects the family members from being burdened with debt in an unexpected event. The heirs can enjoy the property, says Adhil Shetty, CEO, BankBazaar.