What-if you are unable to pay your loan installments?

Easy access to loans for just about any thing, has led to its immense popularity amongst all. But, have you ever wonder what happens if you are unable to repay the loan installment on time?

We have come across many horror stories in the media about the high-handed and often illegal behavior of debt collection agents trying to recover money on behalf of their banking clients. These recovery agents try humiliating you in front of colleagues and family members, intimidate you and even petrify you with physical threats.

You may argue that such acts are unwarranted and the banking clients of these rouge recovery agents should be punished. While we do not condone such actions, however, we sometimes forget that paying the loan installment on time was our responsibility.

There are a few well-regulated and professionally run collection agencies, which work within the boundary of laws and yet do a good job. However they are an exception rather than the rule. Many of these agencies are quite large, with a countrywide network of offices. However this business is unregulated and most such outfits have very low standards and almost no staff screening procedures.

The financial companies who have provided the loans to you and me have limited options available to recover the bad loans – either through recovery agents or through legal actions. We all know the legal route is a time-consuming route for any one. So, most often the defaulting accounts are handed over to recovery agents.

One of my friend who works for a financial services company in US told me a new system that they have experimented with and had great success. This method is pre-litigation debt recovery and employs Debt Collection Attorneys. They are positioned between the recovery agents and the legal attorney.

These collection attorneys combine collections and legal (which are typically two separate functions) into one. They make an effective case and provide practical advice to the financier which results in better recovery rates. Believe it or not, they do all this without compromising the goodwill of the financier. In Indian context too we need such agencies to bring revolution in the Commercial Debt Collection.

You should always try to pay your dues on time and avoid any harassment of any kind. However, if you are genuinely in default then try and engage in a dialogue with the bank. If you can make some payment or provide some additional security the bank might be willing to reschedule the payments for a short period of time. Remember that your default will be reported to the credit bureau and you will find it extremely difficult, if not impossible, to get another loan from any lender.

Taking the initiative to keep your account regular will help you to maintain a good credit relationship with the lender. It will not only keep your overall loan cost under control, but may also provide you an opportunity to avail lower cost loans in future. So it is in your interest to try and resolve the issue.