Personal Loan: What happens if the borrower dies before repaying a personal loan? Who will pay the money? Know the rules.

Personal Loan Rules: If a personal loan is ongoing and the borrower dies, the family doesn't need to panic. Learn what the bank can do in such cases and what the law says.

Life is full of uncertainties, and financial decisions sometimes become a major problem for families. In such situations, personal loans help people in times of need. But many questions related to this are often on people's minds.

If a loan is ongoing and the borrower suddenly dies, the question arises as to what will happen to the outstanding amount. Will the bank demand the money from the family, or will the debt be written off? It's important to understand that a personal loan is unsecured.

This means the bank doesn't have any collateral like a house, land, or car. Unlike home loans and car loans, in a personal loan, the bank cannot directly seize any property to recover the money. This is why the rules are slightly different, and people should be aware of them.

As soon as the bank receives information about the borrower's death, it first checks whether loan protection insurance was taken out with the loan. If insurance is in place, the bank files a claim with the insurance company. The insurance company pays the outstanding amount, and the matter ends there.

If there is no insurance on the loan, the bank's attention turns to the co-applicant or guarantor. According to the law, the co-applicant is equally responsible for repaying the loan. In such a case, the bank can demand payment from them, and legal action may be taken if they fail to pay.

Now, let's talk about legal heirs. Generally, the bank cannot directly demand money from family members. However, if the deceased's assets, such as bank balance, fixed deposits, shares, or a house, have been inherited by the heirs, the bank can recover the outstanding amount up to the value of those assets.

In simpler terms, the responsibility is limited to the value of the inherited assets. If there are no assets and no co-applicant or guarantor, the bank has no option but to write off the loan.