What Happens When You Fail to Repay Your Loan!

What Happens When You Fail to Repay Your Loan!

What is a loan?

A loan is the lending of money by one or more people, organizations, or other entities to other people, organizations, or entities. Debt is incurred by the recipient and is required to pay back with interest on that debt until it is repaid, in addition to repaying the principal amount borrowed, within the given time period.

Types of Loans Services

Loans are further classified as follows:

1. Secured and Unsecured Loans

A secured loan is one that is backed by some type of security. For example, most financial institutions require borrowers to present title deeds or other documents proving ownership of an asset until the loans are fully repaid. Stocks, bonds, and personal property are examples of collateral assets. When borrowing large sums of money, most people apply for secured loans. Because lenders are unlikely to lend large sums of money without collateral, they use the recipients' assets as a form of guarantee.

Lower interest rates, strict borrowing limits, and long repayment periods are all common characteristics of secured loans. Mortgages, boat loans, and auto loans are examples of secured borrowings.

An unsecured loan, on the other hand, requires the borrower to provide no collateral. When it comes to unsecured loans, lenders are very thorough in assessing the borrower's financial situation. They will be able to estimate the recipient's repayment capacity and decide whether to award the loan or not. Unsecured loans include credit card purchases, university loans, and personal loans.

2. Open-End and Closed-End Loans

A loan can also be classified as either closed-end or open-end. An open-ended loan allows an individual to borrow again and again. Although both credit cards and lines of credit have credit restrictions, they are excellent examples of open-ended loans. The greatest amount of money that can be borrowed at any particular moment is referred to as a credit limit.

Depending on his financial needs, a person may choose to use all or a portion of his credit limit. Every time this person uses his credit card to purchase something, his available credit decreases.

Closed-end loans prevent borrowers from borrowing again until they have paid them off. As repayments on the closed-end loan are made, the loan balance lowers. If the borrower requires additional funds, he must reapply for a loan from the beginning. The method comprises presenting creditworthiness documentation and waiting for approval. Closed-end loans include mortgages, auto loans, and student loans.

3. Conventional Loans

When applying for a mortgage, the term is widely used. It's a loan that isn't backed by the government, such as one provided by the Rural Housing Service (RHS).

4. Business Loans

There are several types of business loans, small business loans, working capital loans, term loans, and equipment loans. These types of loans help companies to fund their operations. Alternative business financing techniques, such as billing financing or store cash advances, may be more expensive, keeping business loans as the best business financing alternative.

5. Land Loans

There are two types of land loans: developed and undeveloped land loans. Land loans with better terms are available for sites that are ready to build on. They may already have a well and drainage systems, as well as electrical lines and a driveway. Unimproved land loans, on the other hand, are for a plot of undeveloped land that is either easily accessible or not.

Loan Recovery Process

If loan installments are not paid on time then the bank can charge upon loanee a late penalty or charge a higher rate of interest than usual.

But if a person does not repay the loan amount at all, then upon delay in repayment for 3 months, a notice is issued by a bank in which 60 days time is given for repayment of the loan amount. Then again if the amount is not paid then the bank declares the loanee as a defaulter.

After being declared a defaulter, a person can be prosecuted as per the related law. And the loan can further be recovered by confiscation of assets of the defaulter.

The Vijay Mallya Recovery Case

Last year a statement was given by our Finance Minister Nirmala Sitharaman, that government has recovered from the assets of willful defaulters a total amount of Rs.13,109.17 crore as per information provided by Enforcement Directorate.

The latest recovery was Rs792 Crore from the sale of assets belonging to Vijay Mallya, which included his bank balance, flats, industrial plots, power plant, and even foreign property as he was declared insolvent by a British court.

Mallya was accused of fraud and money laundering allegedly amounting to around Rs.9000 crore regarding Kingfisher Airlines. He left the country and was thus declared an economic offender under Fugitive Economic Offenders Act, 2019.

If a person has an arrest warrant for involvement in economic offenses involving at least Rs.100 crore or more and has fled India to avoid legal action, he or she might be labeled a fugitive economic offender under the Fugitive Economic Offenders Act. This act helps in the confiscation of assets that are not directly related to the offender against them.

Vijay Mallya has become the first person to be declared a fugitive offender under Fugitive Economic Offenders Act, 2019.


The Indian Judicial system and investigating agencies are strong enough to drag a defaulter from a foreign to India for the security of the Public economy. Therefore it can be said that public money in the banks is safe and secure. But one should be efficient in regards to the repayment of the loan amount, after all, it is the exchequer at stake.

eStartIndia is the best business and legal services platform for services relating to loans in India, offering a variety of loans like Business Loans, Home loans, loans against Property, and Term loans.


Falguni Vashishtha
Myself Falguni Vashishtha. I hail from Ayodhya. I am a post graduate lawyer with specialization in business laws.

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