When you opt for a personal loan, there may be times when you are unable to repay it. Under such circumstances, you must be aware of certain rights, as a borrower, which you can use in your favour. 

Additionally, you must know certain tips using which you can avoid a default. There are also several laws of loan application, appraisal and disbursal that you should know when you apply for a personal loan.

Rights of Borrower on Default of Loans

Below are the rights that you must be aware of in case you are unable to repay the loan on time:

  • Adequate Notice Period

If you are unable to pay the loan within the tenure, the financial institution will give you a grace period of 90 days. Once it is over, they will consider you a Non-Performing Asset (NPA) and issue a notice. If you are still not able to repay the loan within that time, financial institutions will take strict actions against you and inform the same to the credit bureaus.

  • Humane Treatment from Lenders

In case lenders appoint a third party to recover the loan, they can only approach you between 7:00 am and 7:00 pm. Additionally, these recovery agents will have to behave decently during their visits and ensure that they do not insult or intimidate you or your family. Also, your lender will have to inform you about the same prior to them visiting your residence. In case of any misconduct, you can appeal to the court of law regarding the same.

  • Seeking Public Assistance

There are facilities of public assistance for borrowers in many regions. These facilities aid borrowers in repaying their loans in case they are facing any hurdles for the same. They can guide you in managing loans and taking the necessary steps to repay them on time.

  • Seek Credit Counselling

You can seek help from professionals who will guide you regarding budgeting and loan repayment to avoid default. They will make a full-proof debt management plan so that you can repay the loan without any delay. At times they can also negotiate with the creditors on your behalf to lower the interest rates on the remaining sum. 

However, you can follow some tips to avoid a loan default which would otherwise lower your credit score significantly.

Tips to Avoid Loan Default

Below are some tips that you must be aware of to avoid a loan default:

  • Choose an Optimum Repayment Tenure

You must select an optimum tenure to repay your loan so that you do not have to pay large sums as EMIs. Hence, it will not turn out as additional pressure on your monthly budget.

  • Select a Lender Offering Lower Interest Rates

You can select a lender charging a lower personal loan interest rate to reduce your monthly outgo. This way, you can easily keep the required amount for your monthly instalment aside and avoid a delay in repayment.

  • Set an EMI Payment Reminder

You can set a reminder for monthly instalment payments so that you are aware of when the date approaches. This way, you can refrain from missing it and hence, avoid any delay.

  • Create an Emergency Fund

You can also start saving for an emergency fund to help you out if you fall short of funds to pay monthly instalments. Thus you will have extra money to pay your instalments on time and avoid defaults.

  • Apply for Only One Loan at a Time

You must apply for only one loan at a time so that you do not experience extreme budget constraints while repaying. Also, you can avoid getting confused as different credits might have different instalment dates.

  • Estimate the EMI Beforehand

You can estimate the EMI before applying for credit. This will aid you in selecting the right loan amount and tenure which will make the EMIs affordable and help you pay them on time.

There are some crucial laws related to the credit application process that you must be aware of as borrowers.

Laws for Loan Application Process

Following are some laws related to the loan application process:

  • Communication language: Lenders must send all notices in the local language.
  • Issuing acknowledgement receipt: Once you submit a loan application, the lender must give you a receipt for the same.
  • Detailed application form: The loan application form must contain all the necessary details that lenders need to know.

Additionally, there are several laws related to the loan appraisal process that you must know.

Laws for Loan Appraisal Process

Below are some loan appraisal related laws:

  • Intimating sanctioned loan amount: Creditors must intimate borrowers in writing regarding the amount of loan that they have approved.
  • Mentioning interest and charges: Lenders must mention the interest rate and additional charges in the loan agreement itself.

In addition, you must also be aware of certain laws regarding loan disbursement.

Laws on Disbursement of Loans

Some of the laws related to loan disbursement are as follows:

  • Changing terms and conditions: Creditors must inform the borrowers in writing regarding any change in the terms of the loan.
  • Accelerating payments: Financial institutions cannot accelerate payments in contrast with the terms and conditions of the loan agreement.

There are several general laws too that borrowers must know.

Other Laws

Below are some other laws that you must know:

  • Quick response to queries: Lenders should respond to the questions of borrowers within 21 days of receiving them.
  • Addressing grievances: Financial institutions must have a robust grievance redressal system where you can lodge a complaint if you are facing an issue.
  • Interference in general affairs: Creditors do not have any authority to interfere in your general affairs.

Once you know your rights as a borrower, you can easily defend yourself in case you make a payment default. However, you must manage your finances well to avoid such defaults, as they can lower your credit score.