Personal Loan

Who is Responsible for a Personal Loan Amount if the Borrower Dies


Each bank’s and NBFC’s agreement for a personal loan has a section that says what happens to the personal loan on death of borrower. In this situation, the loan balance is usually paid for by the legal heir of the family. If the borrower died and had life insurance in his/her name, the insurance company would pay back the personal loan. The borrower’s family wouldn’t have to worry about the money.

Types of Loan

Home and car loans are secured loans, while credit card payments and monthly instalments (EMIs) on personal loans are unsecured loans. Let’s look at each case to see if the bank can force the borrower’s family to repay the personal loan on death of borrower.

Home loan

In the event of a joint house loan, the other co-applicant would be exclusively liable for loan repayment if the primary applicant passes away.

Auto loan

If the borrower dies, their family must pay back the car loan. If the family can’t repay the loan, the bank takes the car and sells it at auction to compensate for its loss.

Personal loan  /  Credit card

Unsecured loans include personal loans and credit card debt. If a person dies without making payments on a personal loan or credit card account, the bank cannot ask the person’s family or legal heir to pay the debt. Since the loan is unsecured, there is no security for it, so the property can’t be taken. The bank writes it off in this case and adds it to an ” NPA account.”

What Takes Place if the Personal Loan is Taken in the Borrower’s Name?

When there is no valid will and the personal loan is only in the borrower’s name, the loan administrator would take care of the obligation. Bank would use the borrower’s assets to pay off the loan, not the administrator, who will not lose money on his own.

What Steps Must be Taken to Repay a Personal Loan on Death of Borrower?

  1. Notify the creditor or lender of a personal loan if the borrower dies. If you don’t, the EMIs will be thought to have been paid in the usual way.
  2. Ask the lender how much money you need to pay back.
  3. Check to see if the borrower has a personal loan or life insurance. It could be used to pay off the debt.
  4. If there is no insurance, the person in charge of the loan should ask the borrower about any property, real estate, or land they may have owned with their family.
  5. Only if the borrower’s name is on the personal loan will the remaining debt likely be written off if the borrower’s assets are not enough to pay off the debts.

When a Borrower Dies, How Would Lenders Get Their Money Back From a Personal Loan?

Lenders never demand repayment of an unsecured loan, except secured loans or personal loan on death of borrower from a legal heir or any living family member. Since there is no security on this credit, lenders can’t seize and sell real assets to get their money back.

Whenever this happens, lenders usually write off the outstanding debt or add this to an “NPA account.” Similarly, family members should know what to do if a person with a personal loan dies.

On the other hand, if a co-applicant and co-signer are engaged in a personal loan, then the individual would have to pay off the sum if the main borrower dies.

But this rule doesn’t say that the borrower’s legal heirs must pay back the debt. They can or could take the things.

The Bank’s Method for Recovering the Loan

No matter what caused the death, a loan must be paid back when someone dies. In this case, the loan will have to be paid for by the guarantor. The bank gets in touch with the legal heirs to ask them to pay off the loan based on how much they own of the asset and property without a co-borrower or collateral. If the legal heirs don’t pay back the loan, the bank could take possession of an asset like a house or car and then sell it at auction to get their money back. Most responsibility for paying back the loan falls on the co-borrower or guarantor.

What is Personal Loan Insurance?

Personal loan insurance lets you pay back the loan if you get hurt, sick, or die before the loan is due. For debt consolidation, the insurance company would pay your loan back. Personal Loan Insurance has rules and terms that the borrower must follow. But if their loan was insured, which means they had insurance, the insurance company would have to pay back the loan amount. Almost all loans today come with insurance because if the borrower lost money, the bank would have no way to get it back. Getting insurance with your loan is almost a must if you want to ensure your family doesn’t suffer if you have bad luck. The lender needs to know that you will pay back the loan.

Protecting Loved Ones After Death

The simplest strategy to prevent heirs from obtaining personal loans after a death is to prepare a will that details how the assets would be distributed. It is illegal for debt collectors to require surviving relatives to pay for a deceased person’s loans, except for joint or co-signed accounts, including loans. They will still attempt, so you’ll be aware of your rights. Accounts containing recipients who are still alive are also immune to creditors (life insurance, retirement accounts, trusts, etc.). A family won’t need to inquire about what occurs to personal loan on death of borrower. If they are prepared and aware of what to do.


Families who have lost their main income earner are worried about how they will pay off any debts or credit card balances. The last thing they would have wanted to do was talk to people from the collection agency. Financial institutions’ steps to get back money that hasn’t been paid depend on the type of loan. In some cases, like a home loan, the law makes it easier for lenders to get their money back. In some situations, like a personal loan, a lender has no legal options.