According to the RBI’s Financial Stability Report (FSR) for June 2024, the NPA (non-performing assets) in education loans stood at a concerning level, highlighting the growing struggle students face in repaying their loans. Falling behind on your loan repayments can have serious consequences. From a damaged credit score to legal action and even asset seizures, the impact can be severe. However, not all defaults lead to harsh penalties. Lenders often treat genuine financial hardships differently from intentional defaulters.
In this article, we’ll break down education loan defaulter legal action and everything you need to know: what happens if you default on an education loan, and how you can avoid falling into this trap.
Legal Action Against Education Loan Defaulters
Understanding what happens if an education loan is not paid in India is extremely crucial for borrowers. In some circumstances, borrowers may be unable to repay the loan and request that the lender adjust the terms of repayment.
If you are unable to make your education loan instalments, the following may occur:
- The lender may send legal notices requesting repayment.
- Lenders may use asset seizures or property attachments to recover their unpaid debts.
- Lenders may apply to the Debt Recovery Tribunal (DRT) to recover the unpaid balance.
- They may file criminal cases.
There are instances where the borrower is unable to repay the debt because of unforeseen circumstances and is not an intentional defaulter. In cases like this, the lender may alter the loan amount to accommodate both parties' needs and payback schedules.
However, the lender may take legal action against the borrower if they are found to have intentionally defaulted. According to RBI regulations, a borrower who engages in intentional default may be subject to legal action.
Consequences of Education Loan Default
The education loan default consequences in India that borrowers may experience if they are unable to repay their loans include:
1. Impact on the Credit Score:
The borrower's credit score is directly impacted by education loan default. The borrower's financial situation would be negatively impacted for some time by the major drop in the CIBIL score. Delays and defaults on EMI payments hurt borrowing capacity and can result in problems with future loans.
2. Legal Action and Penalties:
Lenders have the right to penalise the borrower or even pursue legal action against loan defaulters if EMI payments are not made on time. Collateral might be used by the lender to reclaim the loan.
3. Repeated Reminders from the Lender:
The borrower is entitled to notices and reminders from the lender if they do not return the loan amount. The lender may remind the borrower within 90 days of the non-payment. The lender may again notify the borrower if there is any further EMI delay after 90 days.
If the EMI is not paid after the 90-day reminder, the lender may take additional steps, such as designating the borrower as a non-performing asset.
How Can You Avoid Legal Action Due to Education Loan Default?
Borrowers may significantly reduce their chances of becoming education loan defaulters and being penalised by education loan defaulter legal action by using these methods. Here are a few useful measures:
1. Timely Repayment:
Make sure you pay back your loans on schedule. You can stay on track by setting up reminders or recurring payments. Contact your lender right away to discuss possible alternatives if you anticipate any problems making a payment.
2. Options for Loan Restructuring:
Ask about loan modification or deferment alternatives if you are having trouble making your repayments. Numerous lenders offer plans that permit a short-term payment decrease or a repayment period extension, which can be an urgently needed relief.
3. Continue to Communicate Openly with Lenders:
Stay in contact with your lender at all times. If you run into financial trouble, let them know right away. If lenders are aware of your problem beforehand, they might be more flexible and present you with different repayment plans or ways to stay out of default.
Rights of Every Loan Defaulter
As per RBI guidelines, borrowers still have certain rights, even if they can’t repay the loan. These rights cannot be denied during the recovery process.
- Right to Notice: Before receiving a possession or recovery notice, the borrower should be given proper notice.
- Right to Fair Value: The borrower must get a fair value notice. The sale price that has been determined for the assets that the lender has repossessed should be notified to the borrower.
- Right to be Heard: The borrower has the right to raise any concerns they may have about the lender's notice of repossession.
- Right to Claim the Debt: If the amount of the remaining debt is less than the asset's fair value, the borrower may be able to claim the remaining balance.
- Right to Polite Treatment: During the debt recovery procedure, the lender shall treat the borrower with dignity. Throughout the entire procedure, he or she shouldn't be subjected to harassment, humiliation, mistreatment, or abuse.
Conclusion
In India, defaulting on an education loan might have major legal consequences. Prompt repayment and effective communication with lenders, borrowers can prevent legal actions and safeguard their financial future. Before you get behind on your payments, it is essential to contact your lender if you are having trouble making your education loan payments.
Platforms like Credila offer education loans for abroad with flexible repayment tenures. It's important to keep in mind that student loans are intended to help students progress academically, not to put them under financial strain. You may ensure a better future for yourself and avoid legal complications by managing your student debt with initiative as well as responsibility.
Disclaimer:
As of March 31, 2024. T&C apply.
Credila Financial Services Limited (Formerly known as HDFC Credila Financial Services Limited)
The education loan facility provided by Credila Financial Services Limited ('The Company') will be at the sole discretion of the Company and within the Company's prescribed credit and underwriting norms/guidelines prevailing at the time of processing and disbursing the education loan. The Company maintains the right to change the interest rate at any time and at its sole discretion, without prior notice.
