What happens to loans if the borrower dies before clearing the dues?

For the happiness of our family, we make all sorts of arrangements like buying a house by taking a home loan, car by taking auto loan etc. But what if the person who has taken the loan dies? Who will be responsible for repaying those huge loans after the death of the borrower?

To know the answer to this question, it has to be understood that not all loans are of the same type. Loans are kept in the category of secured and unsecured.

Types of loans

Secured loan means home loan, auto loan and unsecured loan means EMI of personal loan, credit card etc. Now let us understand one by one whether the bank can recover the loan by putting pressure on the family if the borrower dies.

Home loan

If someone has taken a joint home loan and the primary applicant dies, then the entire responsibility of repaying the loan will be with the other co-applicant.

If the other applicant is also unable to repay the loan, then the bank has the right to adopt the process of recovery under the Civil Court, Debt Recovery Tribunal or SARFAESI Act. The bank can recover its loan by taking possession of the property and selling it. However, banks give a few days to the family members to arrange money to repay the loan. If the deceased person took a term policy or any other policy, then the banks give family members the time to arrange money through the policy in order to repay the loan.

Auto loan

If any person taking the auto loan dies, then the responsibility of repaying this loan falls on the family. If the family is not ready to repay this loan, then the bank takes possession of the car and auctions it to recover its loan.

Personal loan/Credit card

Personal loans, credit card bills, all these come under the category of unsecured loans. If a person dies without paying his personal loan or credit card bill, the bank cannot ask the surviving members of his family or his legal heir to repay the loan. Since it is an unsecured loan, there is no such thing as collateral and hence the property cannot be attached. In such a situation, banks write it off i.e. put it in the NPA account.