Is not paying loan a criminal case?
What is the punishment in India if someone defaults on a bank loan? What will happen if I am unable to pay my personal loan? Can I go to jail if I’m unable to pay back the loan EMIs due to job loss? What is the difference when the default in on a secured loan, and what happens if the loan against property is not paid?
If you miss EMIs or stop paying a loan in India, it is not automatically a criminal offence. In most cases, it will be a civil matter. Your bank (your lender) will do the following:
- Send legal notices.
- They will also report you to a credit bureau, making it difficult to obtain another loan.
- In their own books, they will classify your loan as a non-performing asset (NPA) and file a civil suit to recover the money.
If you’re genuinely unable to pay, such as due to job loss, you should contact your lender early to work out a payment schedule rather than expect an arrest.
You can go to jail only under special circumstances.
For example, if you intentionally obtained the loan by giving false information. If you issued cheques that bounced and triggered prosecution under Section 138 of the Negotiable Instruments Act 1881. They can also file charges for fraud/cheating under the Indian Penal Code, 1860 (IPC).
So, ordinary default without fraud doesn’t lead to jail.
For secured loans, like a loan against property, the lender has the right to take the collateral (your pledged asset) if you don’t pay. They’ll follow the terms of the agreement and can take possession and sell the property after the required notices.
For unsecured loans, the bank can go to court and ask to take some of your money or belongings if you don’t repay.
The main difference is this: with secured loans, you have given something as security (like a house or car), and that item can be taken by the bank.
With unsecured loans, you don’t give any security, so the bank can’t directly take a specific asset, but you still have to repay the money. This is what can drag the issue on for years if you are still not capable of paying back the loan.
Suggested Read: For more details, read this blog post on personal loan default.
