While taking a loan from the bank or any other financial institution, we are made to sign a legal agreement or document which states that we are promising to repay the money in full along with the interest as per the time period and other guidelines mentioned in the agreement. It is thus understood that all loans will be returned in good faith within the stipulated time period. And in most occasions till now this has been the case.
But the market scenario has completely changed today. The economic downturn is seeing more at more people failing to keep their commitments. Borrowers today can be divided in two different groups-
- Those who do not repay the loan intentionally, and
- Those who had a clear intention of repaying the loan but his/her circumstances transformed in such a way that he/she is unable to repay the loan. Often these types of people are forced to turn into intentional defaulters at times.
Truth may be one of your core values. Honesty may be something you pride yourself as having. Dishonesty may be at conflicting odds with you. But circumstance, and specially trying times, has the power to change and test the best of us.
Series of peaks and valleys
Life is a series of peaks and valleys. Sometimes you’re up, sometimes you’re down. It is when you are down when you can become an unintentional defaulter, for no fault of your own. But here the note of caution is that an unintentional defaulter should not turn into an intentional defaulter.
An unintentional defaulter can sometimes become an intentional defaulter as a kind of defence mechanism which gives us the belief that as the situation has turned so much against us, we are justified in not returning the loan amount.
Let us have a look at what you can do if you find yourself to be an unintentional defaulter:
Inform the bank or financial institution
When you see that you are in a situation where you won’t be able to repay the loan or its EMI, do not think of running away from the bank or financial institutions. They also understand that the circumstances can be difficult at times and the borrower is genuinely in trouble. This especially stands true when you have never defaulted on any of your EMIs before and have paid them on time.
The best solution is to get in touch with the bank and make them understand your situation. Based on your problem, the bank will try to find various solutions that can be feasible for both the parties.
Some of the common solutions that banks provide to defaulters are-
Rescheduling the debt- Once you inform the bank about your financial situation, they will analyze the problem and can extend the tenure of the loan. This will reduce the EMI but will increase the interest on the long run. However, you will get the much needed relief that you want in this unstable phase of your life. Moreover, as soon as things turn bright for you, you can try to re-negotiate the tenure of the loan.
Deferring payment- For instance, if you are unable to pay the EMI due to loss of job and your cash flow will get back to normal once you get a new job again, the banks can also offer a temporary relief for some months. However, you will be required to pay a penalty for defaulting on the EMI.
Settlement- If you discuss your financial condition with the bank and have a genuine intention of repaying the loan, banks might offer you a one-time settlement. If you do have some money with you, then this is an ideal way to get rid of the loan as the banks will waive of a considerable amount from the total amount you borrowed from the bank.
Running away from the situation is never a solution and this stands true to bank loans as well. Apart from the emotional stress that you and your family might go through, you will lose the asset as well in the end. The most important thing is that the lender should be able to see that you have a genuine intention of paying off the loan. So rather than running away or making excuses, discuss the problem with the lender and they will find a way that will be suitable for you as well as them.