Banks and lenders can take the below-mentioned actions in case a borrower fails to repay a secured personal loan:
- Send Initial Notice: At first, the bank or lender will declare a borrower’s loan as an NPA. A loan is considered an NPA when dues remain unpaid for more than 90 days. Post this, the bank will issue a ’60-day notice’ as per SARFAESI Act to the borrower. Within this notice period, the borrower or now a loan defaulter can come forward and pay back the dues to ensure that the case is closed.
- Public Notice: If a loan is not cleared in a 60-day time frame after the initial notice, banks can issue a 30-day public notice to inform regarding the potential sale of an asset.
- Fair Value Notice: Before selling the asset in possession, the bank or lender must also issue a notice to inform about the fair value of the asset.
- Take Possession of Collateral: Once the entire notice period has been served, the bank immediately seizes the collateral (asset) and begins its sale proceedings.
Since a personal loan is mostly an unsecured loan, the bank will have no collateral. In case of a personal loan default, banks also have a few of the below-mentioned options:
- Negotiations: Banks can begin negotiation with the loan defaulter and settle the case. This is the most preferred mode used by most banks because litigation will cost additional money to the banks.
- Post-Dated Cheques: In case negotiations fail, banks can decide to approach the court. Since loan default is a civil dispute, no arrests can be made. Thus, the bank can request the borrower to give post-dated cheques for clearing the dues. In case the cheques get bounced, an arrest can be made as per law.