Taking a loan and repaying it on time is a big duty. This work is done with precise strategy and complete preparation. Those who fail in this, get buried in the web of huge debt. In such a situation, the bank is also free to take legal action against the borrower because this is written on the loan paper. A question arises if the borrower passes away before paying the loan amount, then who repays that money? The answer is the co-borrower, guarantor, or legal heir of the borrower. That is why it is said that one should become a guarantor in one's loan only after very careful consideration.
One thing to keep in mind is that the creditor of the loan can change the name of the guarantor, legal heir, or co-borrower from time to time. If the guarantor also wants, he can go to the bank himself and apply for a change in it. However, there is a huge discount available on personal loans. Since this loan comes under the category of unsecured, the money is not recovered from the legal heirs or family members if the creditor passes away before repaying the loan.
waived personal loan
In a loan like a personal loan, no collateral ie security is also taken, so the bank cannot confiscate any property of the creditor. In the end, the loan amount is waived off and the bank puts it in the NPA account. If a joint holder has also applied on the loan paper with that creditor, that is, two people have taken a loan together, then the bank recovers money from the second on the death of the first creditor. The same rule applies to credit card loans as well.
Personal loan insurance
Nowadays most unsecured loans such as personal loans come with insurance. In this, the primary borrower (the first creditor) is insured. The insurance coverage continues till the entire repayment tenure of the loan. In the meantime, if something untoward happens to the borrower, then his loan is forgiven. What happens in this is that the bank takes the loan money from the insurance company from which the loan is insured. The money for this insurance has to be paid by the borrower itself, which is often paid in one go.
What happens if the borrower dies
If the first borrower settles down without repaying the loan, the bank first catches the co-applicant. If the co-applicant is not able to repay the loan, the bank contacts the family members, legal heirs, or guarantors. If any of these people agree to repay the loan, then the bank returns the property held by them to its owner. If no one is ready to repay the loan, then the bank seizes the property and recovers the loan by selling it.