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    what are the consequences of defaulting on the loan against property?

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    Pavan Kumar
    Proud organizer. Food nerd. Extreme thinker. Evil alcohol expert. Falls down a lot. Freelance music buff. Explorer.

    Introduction

    In India, availing a loan is extremely easy. All you need to do is to find a lender, organize the documents properly, and apply for a loan. However, the problem arises when you are unable to repay the EMIs on time.

    This article will give you a rundown on the things that can happen when you default on the repayment of a loan against property and the things you can do to avoid getting penalized.

    What is Special About a Loan Against Property?

    Unlike a personal loan, a loan against property is a secured loan, which means you can apply for it only if you have a residential, a commercial, and industrial property, or a plot of land, in your own name. We can apply for loan against property on these type of properties. 

    Before approving the loan, the lender would take a look at the property and its legal status and would keep the property papers as collateral security. 

    What Can Happen if You Default on Loan Against Property EMIs

    A lender would consider you as a defaulter if you are unable to repay your loan EMIs for a period of three to four months.

    Generally, the lender would send you a reminder as soon as you default on the first month’s EMI, and they will continue doing so for all subsequent defaults. Once the grace period declared by the lender in the loan agreement expires, the lender would be liable to take legal action. In the worst case, the borrower may have to let go of their mortgaged property.

    Here are the things that may happen if you are unable to repay your loan against property EMIs on time:

    1. Late Payment Penalty

    As a fact, loan against property interest rate is hovering near their all-time lows. However, if you default on the EMI, the lender would add a hefty penalty, which may automatically escalate the actual cost of the loan.

    2. The Rise in Interest Rate

    As every loan-related transaction you make affects your credit score, defaulting on loan EMIs will negatively impact your credit score. Hence, you might have to pay higher interest on your unsecured loans, like personal loans or credit cards, in the future.

    3. Loan Sanction Issues

    When you default on a loan, your credit score comes down. With a low credit score, it may be difficult for you to avail of a loan going further. Even when you manage to secure a loan, you may expect the interest rate to be exorbitantly high.

    4. Debt Recovery Agents May Pressurise You

    Generally, lenders allow you up to 60 days to repay. After 90 days, they mark you as a defaulter and might hand over the case to debt recovery agents, who would constantly pressurize you to repay the loan. There have been numerous police complaints and court cases because of the excesses of recovery agents.

    5. Legal Action

    In one final step, the lender may approach the court, and based on their application; the court might issue a legal notice to you to repay the loan. In case you are unable to honor the court order, the lender would take possession of your collateral, publish a public notice, and auction your property.

    How Can You Avoid Defaulting on the Loan Against Property EMIs?

    Avoiding a default is not difficult if you plan accordingly. It is prudent to plan how you are going to repay your loan.

    If, however, you are still unable to repay the loan, talk to your lender even before missing out on the first EMI. There are several options, ranging from loan restructuring to a reduction in interest rate, that you may explore.

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