What if My Personal Loan Turns into NPA?

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Getting a loan is a very convenient financial weapon, particularly if executed through a trusted personal loan platform. Personal loans, more specifically, are in vogue because of the convenience and the rapid disbursal involved. Nonetheless, like any other credit product, repayment must happen on time. But what happens when you are unable to pay your loan on time and it converts to a Non-Performing Asset (NPA)?

In this blog post, we shall take you through what happens when a personal loan turns into an NPA, how banks and financial institutions treat such situations, and what entitlements you possess as a borrower.

Understanding Different Types of NPAs

Before discussing the consequences of a personal loan becoming an NPA, let’s first know about the categorisation of NPAs. These categorisations are based on the duration for which the loan has been outstanding and the risk of recovery.

Sub-Standard Assets

A loan is classified as a sub-standard asset if it remains unpaid for a maximum period of 12 months. Such accounts reflect major credit problems and generate concerns regarding the borrower’s repayment ability. Lenders on a personal loan platform usually mark these accounts as closely monitored.

Doubtful Assets

When a loan account is not settled for more than 12 months, it falls under doubtful assets. Such instances have all the risk factors of sub-standard assets, but with lower probabilities of recovering the dues. Even the most reliable personal loan platform will treat such accounts as liabilities.

Loss Assets

A loan account is classified as a loss asset when it is deemed irrecoverable. Even though there is some hope of recovery, the value is so eroded that it’s usually taken off the institution’s books as an active asset.

Immediate Steps Lenders Take After Multiple Missed EMIs

As soon as you miss your EMIs continuously, the lender treats your loan as a Non-Performing Asset. Instead of going to legal proceedings immediately, banks and lending platforms provide a grace period, generally 60 days, for you to settle the amount overdue.

This window is an opportunity for a last attempt to pay off your outstanding dues or contact your loan platform to negotiate a potential repayment plan. In most instances, open and transparent communication regarding short-term financial challenges can result in a revised repayment plan or a settlement agreement.

Using a tool such as a personal loan EMI calculator can also help you budget your monthly payments more effectively, minimising the likelihood of default.

How Lenders Recover Dues Through Bankers’ Lien?

Although personal loans are unsecured, some lenders can put a lien on your fixed deposits, mutual funds, or other financial instruments. This implies that you will not be able to sell these instruments until your dues are paid.

In such cases, lenders invoke their legal right to offset the outstanding loan balance against your fixed deposits or savings. Personal loan platform services typically include these terms in their loan contracts, so it’s important to read the fine print before enrolling.

Legal Action to Recover Outstanding Loans

If there is no repayment within the grace period, lenders can go ahead to file a case in the respective court. The legal process provides financial institutions with the opportunity to obtain a recovery order.

On a positive court ruling, the lenders are legally authorised to seize your personal assets or financial property to recover the defaulted loan. In the event of a personal loan platform, the terms and conditions of such legal proceedings are usually specified in the loan contract.

Debt Recovery Tribunal (DRT) Involvement for High-Value Loans

For defaults in personal loans over ₹20 lakh, lenders can go to the Debt Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

The DRT can also accelerate the recovery process. A receiver or commissioner can be appointed to attach and sell your properties. Most loans obtained via a personal loan platform are below this limit, but it’s nice to know how defaults on larger loans are handled.

Rights Available to Borrowers in Case of Default

Missing a personal loan, even from a strong personal loan platform, doesn’t rob you of your rights. Borrowers in India are safeguarded by numerous laws and guidelines by the Reserve Bank of India (RBI).

Here’s what you’re owed:

Right to Notice: Your lender has to give you a formal notice before taking legal action, usually with a 60-day window for you to clear the outstanding loan.

Right to Be Heard: You may plead your case in court or before the Debt Recovery Tribunal if action is taken against you.

Right Against Harassment: Banks and recovery agents are required to adopt ethical recovery practices. Harassment, intimidation, or coercive methods are not allowed.

Right to File Complaints: In case you face any misconduct on the part of the lender or recovery agent, you can file a complaint with the concerned bank or financial authorities, and even the police if needed.

Tips to Prevent Your Personal Loan From Becoming an NPA

Prevention is better than a cure, particularly in the case of financial obligations. Here’s how you can prevent your personal loan account from being tagged as an NPA:

Select a Personal Loan Platform Carefully: Select a platform that provides easy repayment options and clear terms.

Use EMI Calculators: This allows you to plan your monthly outgoings and ensures you don’t overextend yourself financially.

Activate Auto-Debit Instructions: Auto-debiting your loan repayment minimises the risk of missing EMI due dates.

Have Emergency Funds: Keep a contingency fund that is at least 3-6 months’ worth of EMIs.

Communicate Early: If you see repayment problems on the horizon, alert your lender or personal loan platform in advance to talk about potential solutions.

The Reliable Solution When You Need Money

It’s important to keep an eye on your financial obligations if you want to have a healthy credit score and stay clear of legal issues. If you ever get yourself into a loan repayment disaster, being proactive with your lender can turn the situation around.

If you’re searching for a dependable financial solution, Stashfin is a trusted platform offering instant personal loans up to ₹5 lakhs. Known for its quick approvals, minimal paperwork, and flexible repayment options, Stashfin stands out as a user-friendly personal loan platform designed to support your financial needs in both urgent and planned scenarios.

Apart from personal loans, Stashfin also offers bonds and debentures to invest in, enabling you to diversify your financial portfolio. With clear-cut terms, simple application procedures, and secure online services, Stashfin facilitates borrowing and investing for today’s consumers.