Who Bears The Loan After The Borrower's Death? Loan Liability Explained

Yes, the answer to the question is—the legal heir is held accountable for repaying the loan inherited from the deceased borrower, but the answer varies according to the type.  

Examining the obligations to repay after the borrower’s death across different loan categories is essential. Let’s dive in!  

The primary borrower's death passes to a co-borrower who can repay the amount. Still, the co-borrower cannot pay the outstanding amount and then transfer it to the legal heir for repayment. 

Upon the primary owner's death during a car loan, the lender will contact the family and ask a legal heir to acquire the vehicle, but if they decline, the bank is entitled to repossess or sell it at auction. 

If the borrower dies, the lender cannot seek repayment from the legal heirs. The loan will be treated as a non-performing asset (NPA) without a co-borrower. 

Here are the loan liabilities you must know that may occur after the death of the borrower: 

Unsecured loans, like personal loans or credit card debts, are not obligated to be repaid by the legal heir. The lender can, however, claim repayment from the deceased’s estate.  

Secured loans are the type that require collateral, such as property or vehicles. The lender claims it after the borrower's death. The legal heir can repay or use the insurance for settlement.  

If the co-applicant signs the loan document, they are responsible for repaying any remaining debt after the borrower's death, as outlined in the loan contract. 

After the borrower's death, the loan automatically falls on the head of the legal heir. Legal heirs are eligible to pay the debts to the extent of the assets they inherit, but it is not beyond the value of the inheritance they received.