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Here's how you can get out of loan defaults

Last updated on: December 19, 2013 14:41 IST

Here's how you can get out of loan defaults

Rajiv Raj

A loan default is not the end of the world. Here are your options.

Life is just not fair sometimes. When everything is just going fine, a job loss or an accident could just turn your world upside down. All the dreams of having a lovely home, with a nice car for your family that you bought on loan just comes crashing.

You get hounding calls from banks' recovery agents. They talk to you badly and put you down. This is not a situation any of us like to be in. In such a case, running away from the problem is definitely not a solution. So how can you handle a situation like this to get out of such financial problems?

You need to start talking to your bank to find an amicable solution. If you have a genuine problem, banks do look at working out a deal that is suitable for you. You also stand to gain because the bank won't take away your asset if you cooperate.

The options are:

Reschedule your repayment

If you have taken a home or an auto loan and have decent track record so far, the bank may reduce your EMI burden and extend your loan tenure. This could be a breather. It may add to your interest burden, but nonetheless an amicable solution.

In the future when the better times come knocking you could talk to your bank and get the EMI increased as per your convenience.

Deferring payment

You could take a temporary break from paying EMI if you are sure of finding a job in the next few months. Banks may agree to this but may charge a penalty for non-payment.


If you are close to finishing your loan, talk to your bank. See if you can pool in funds to foreclose or settle the loan. The bank may be willing to do it.

Add collateral

If your loan is an unsecured one, the bank may convert it into a secured one by taking some collateral. The collateral could be a car or gold or a property you own.

It is imperative for you to pay up the loan you have taken. Do not run away from the situation. Face it boldly and see what is the best you can do to tide over the problem.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Photographs: Rediff Archives