What happens if unable to pay car loan ?

191 votes

If vehicle loan EMIs are not paid in India, the lender has the legal right to initiate recovery proceedings. Initially, the borrower may be charged late payment fees and penal interest. Continued defaults can lead to repossession of the vehicle, often without court intervention, under terms outlined in the loan agreement. The borrower?s credit score will also take a significant hit, affecting future loan eligibility. In persistent cases, the lender may resort to legal action to recover the outstanding amount, and the borrower may be liable for additional legal costs and penalties. It is advisable to contact the lender proactively and explore options such as loan restructuring or a settlement plan if EMIs become unaffordable.

LawRato LawRato

544 votes

Avoiding the lender bank will make your situation worst and depending on your loan agreement the lender bank will classify your loan as non-performing asset (NPA) and send you a written notice of default asking your make the remaining balance on your car loan or face repossession. In such situation, you will face a legal consequences for repayment of your car loan and your repossessed car might be sold at an auction to pay of your default loan amount. And this is not an end, as you might face a default judgement wherein you lender bank could move the court to claim any remaining outstanding loan balance that you owe on the car loan even after the auction. Beside your credit record will be adversely affected. Worst, the lender bank may also file a criminal proceeding under Negotiable Instrument Act for cheque bounce. If you have already received a NPA notice, I suggest you call us for assistance or any other attorney specialized in this field. Proper defending is very imperative in such type of cases. Since you already made your mind to get rid of your car loan, you cannot enter a transaction with any seller without a 'No Objection Certificate' (NOC) from lender bank. The NOC can only be obtained after foreclosure or after you have paid off your loan. I suggest you speak with your bank and tell them about your situation, try to work with them. Banks are always there to help you out in such situation. Give them a genuine reason. Ask them to waive any accumulated late charges. The best way to deal with the situation is to first liquidate the loan through own funds or cash raised through a personal loan. Thereafter one can dispose the car at the best possible price and pay off the personal loan immediately. The only loss incurred in such an option includes the personal loan processing fee and the EMI for a month. But this process will fetch maximum value for a used car still under finance. The other option is to find someone who trusts you to buy the car buy first paying off the outstanding dues. However this method has its own problems apart from the fact that finding such a customer may not be easy under such circumstances. Additionally anyone who intends to bail you out would obviously want huge discounts in the pricing. The actual transfer of ownership will take about a month as the bank will take 2 weeks to give the NOC followed by 2 weeks by the RTO to remove the hypothecation entry in the RC. You can also ask your lender bank to make an arrangement of a tripartite agreement with you and the new buyer wherein the ownership is till retained with the bank and the only the loan liability is transferred to the new borrower till the outstanding amount is liquidated. However you will still be responsible against any defaults in the future as the car is a moveable property whose hypothecation continues with the bank against you as the original buyer. The banks will charge some amount of additional processing fees and legal charges for entering into such an arrangement. If your financial situation is really bad, then you may need to file for bankruptcy to free yourself from the loan commitment. Disclaimer: Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company.

Advocate Robert D Rozario LawRato

997 votes

General rule is you have to pay debt of finance company.the car is hypothecated to the financed company and the finance company has right to take possession of the said car due to non payment of debt.but sometime the finance company agree to OTS of the loan account.

Advocate Debasis Mitra LawRato