Loans are a risk and could affect both the borrower and the lender both positively and negatively. There could be many scenarios when a borrower is not able to make payments on time. It could be a job loss, sudden illness, family emergency, etc. At such times, when a borrower is unable to repay the loan taken by a bank, the bank might take certain steps to try to recover their money.
At such times, approaching the bank promptly and making them aware of your current financial situation is the best way to get leverage with your bank. You may get an option on a flexible repayment option or a time period where you are allowed to defer your payments. You may also look for a settlement on your loan in case your financial adversity is going to be for a long period.
Here are some of the steps that a financial institution may take once a borrower defaults on monthly payments:
- Report The Default To the Credit Bureau – The first thing that impacts your inability to make payments on time is your credit score. Any inability to make payments on time is reported by banks to the credit bureau and your credit score goes down. This may be trouble for you in future when you are financially stable and would like to be considered for future loans. These days banks are reliant on a good credit score and a low credit score will lower your chances of getting a loan approval in future.
- Reminder Calls and Written Notices –While reminder calls and notices would not start for at least two or three failures for some banks, more than three months of consecutive defaults will lead to phone calls being made to you to inquire about the pending EMIs. A written notice may also be sent out to your communication address when banks fail to reach you over the phone or regardless of a telephonic conversation, they may send you a written reminder.
- Legal Notice – Failure to respond to attempts made by banks to you via phone, sms, letters can lead to a legal notice sent by bank. This is also the final point at which the bank may use the collateral you gave at the time of loan into their permanent custody.
- Collateral Ownership Change –While collateral ownership change may be the last thing a bank might want to do, failure to recover money from all the other means of communication may lead to that. Once the banks take ownership of your collateral, they will auction it to get the money back.
Each bank has an individual scenario set in case of defaults and it is paramount that constant communication with bank is maintain by a borrower for a mutual understanding.
We at Letzbank remain sanguine that we will make all efforts to guide you that you make the right decisions and help you in that hour of need. We want to keep up the goodwill of our customers – because we value our relationship with you.