Understanding the Personal Loan Recovery Process

Personal loans are one of the most viable solutions for urgent fund requirements. However, repaying them timely must be your top priority to avoid any financial burden. Delaying on your repayments incurs fines and excess delay may force the bank to take necessary actions such as the loan recovery process.

In case a borrower does not pay the loan EMI on time, the bank sends a recovery agent to retrieve the remaining amount from the borrower. There are debt recovery guidelines in the banking laws for the speedy recovery of loans. Let us understand those measures in the article below. 

What is a personal loan recovery process?  
 

Instant personal loans are easy to acquire in minutes but repaying them on time should always be the top priority. However, borrowers sometimes find it hard to repay their EMIs causing banks to take necessary actions. Skipping one or two instalments usually results in the bank sending the borrower notifications of missed repayments. But for longer repayments delays, the banks may take judicial or non-judicial steps to recover their lent amounts. 

Usually, the situation of non-repayment arrives due to sudden financial emergencies to the borrower or if they choose a loan amount beyond their repayment capacity. It is always advisable to choose the most affordable deal after undergoing extensive research online. You can reach out to IDFC FIRST Bank for affordable personal loans of amounts up to ₹1 crore. You can also consolidate your previous loans to conveniently clear your debts. Moreover, you get easy and instant approvals through online applications and documentation.

RBI Guidelines for personal loan recovery
 

Banks may adopt various loan recovery processes depending on the reason for default. They can reclaim the amounts back through collaterals or by offering an extended moratorium. If both don’t work, they may send a recovery agent. Let us understand the process through different scenarios.

· Scenario 1
 

The borrower is a valued customer of the bank and has a good credit score. However, due to some sudden financial emergency such as a job loss, the borrower is unable to pay the instalments. Under such circumstances, the bank may take the following steps.

1. Extends his/her loan tenure to bring the EMI down so that the loan repayments are easier.  

2. Provide a moratorium where the borrower won’t have to begin EMI payments for a few months

Due to the adverse effect on credit scores in all the above situations, opting for an extended tenure is the best option for the borrower

Note: Above process depends on a bank-to-bank basis. Please check with the lender for any moratorium and loan extension facility

· Scenario 2
 

The borrower has a low credit score and has applied for a loan under unstable financial conditions. They usually receive high interest rates and shorter repayment tenures. The bank may also secure the loan through collateral.

If the borrower is unable to repay the loan, they may not receive an extended moratorium period.  The bank may also sell the collateral to retrieve the loan amounts. However, the borrower can claim the excess amounts after the sale of assets.

In case neither of these scenarios work, the bank sends a loan recovery agent who collects the remaining loan amount as per RBIs guidelines.

RBI’s guidelines for loan recovery agents
 

The Reserve Bank of India has elaborated some guidelines when it comes to loan recovery agents. Some important guidelines are mentioned below.

· The recovery agency's details must be communicated to borrowers.

· When visiting the defaulter, the agent must also bring a copy of the bank's notice and the authorisation letter.

· Banks are not permitted to refer a case to a recovery agency if a borrower has filed a complaint until the complaint has been resolved or dismissed.

· The bank must also make sure that complaints from borrowers about the recovery procedure are handled properly.

· When working with loan recovery agents, banks must have a structure set up that ensures their due diligence, and that they are accountable for any complaints filed against them.

In case you are in a situation where you cannot repay your loan instalments, you must approach the bank and ask for a moratorium. You can also request a settlement if you are not in a position to clear the loan repayments soon. However, if you are repaying high-interest loans, consider a debit consolidation (balance transfer) on your existing loan as offered by the IDFC FIRST Bank to conveniently repay your loan amounts. Do note that this would considerably affect your credit score, which is why it is advisable to opt for a lender that offers favourable loan terms so that you can repay the loan without any delays.

Note: Please reach out to your respective lender on moratorium or settlement process. The lender may or may not offer it depending on case-to-case basis

The Consequences of Non-repayment of EMI or Personal Loan are severe which could be as below

· Higher Debt Burden – You might have to pay the full amount with all the penalty charges in lesser Tenure, thereby increasing the liabilities

· Credit Score Damage – Lenders have to report to the authorities regarding the payment/non-payment of EMIs/loans, this might have a negative impact on your credit score

· Difficulty in taking a new loan – Because of the above mentioned reason, lenders might think twice or not lend you back

· Legal Actions