What are you entitled to if you cannot repay a loan

Despite being late in repayments of your loan, the lender and its recovery personnel are legally obligated to treat you with dignity and adopt a reasonable stance.

Defaulting on loan repayment is a condition most borrowers are subjected to—particularly due to loss of job, medical crisis, or business downturn. Although there can be genuine concern about penalty, legal notice, or deterioration in credit score, it is also necessary to know that Indian borrowers do have certain legal safeguards and entitlements despite default. Knowing such entitlements can assist you in handling the situation better and negotiating an amicable settlement from your lender.

Right to reasonable treatment and protection against harassment 

Despite being late in repayments of your loan, the lender and its recovery personnel are legally obligated to treat you with dignity and adopt a reasonable stance. The Reserve Bank of India (RBI) has imposed stringent guidelines prohibiting banks and recovery personnel from resorting to abusive terms, threatening gestures, or harassment—personally, telephonically, or even in your office.

Recovery calls should be made between 8 a.m. and 7 p.m. only, and agents cannot visit your home multiple times or threaten legal action without due procedure. You can approach the relief if you experience such misconduct by filing a complaint with the bank's grievance redressal system, and in the event of failure to receive relief, approaching the RBI Banking Ombudsman.

Right to reasonable notice before taking loan recovery action 

If your loan account turns into a non-performing asset (NPA)—usually after default of 90 days—banks can start recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. But prior to that, they have to serve you with a 60-day notice before they take over or auction any secured property, like a mortgaged house or security pledged.

During the above two dates, you are entitled to repay the dues and put an end to the recovery process. You can even file objections if you think there is a discrepancy or mistake in the recovery process of the loan. When it comes to such unsecured loans like credit cards or personal loans, banks have to approach civil court and are not allowed to attach your personal properties arbitrarily.

Right to negotiate restructuring or settlement 

You can go to the bank and seek loan restructuring, moratorium, or one-time settlement if you are indeed facing financial troubles and cannot repay. Banks might provide new EMI terms, stretch the repayment tenure, or suspend repayments temporarily through RBI-approved restructuring plans. Lenders might also agree on a lower lump sum on rare occasions.

Such settlements have to be managed with caution, since settlements do negatively affect your credit report. But they are legal and acceptable remedies for such borrowers who are experiencing recurring trouble and can avoid further legal issues.

Right to view your credit report and dispute errors

If you're in default on a loan, the bank will report the default or lag to credit bureaus such as CIBIL, Experian, or CRIF High Mark. This will affect your credit score and your loan eligibility in the future. Still, you can take the benefit of checking the credit report and request correction for any wrong entry. If the bank has submitted your payment history or settlement record wrongly, you may make a request for correction under the credit bureau.

Right to be informed of legal proceedings 

If the bank initiates a legal case to retrieve the defaulted loan, you are entitled to receive notices from the court and the chance to defend yourself. You must respond within time to any legal notice so that an ex-parte judgment (a judgment given in your absence) is not granted to them. In the event of insolvency, people can approach under the Insolvency and Bankruptcy Code (IBC) so that debt resolution is attempted through the legal mechanism.

Defaulting on a loan does not mean forfeiting your rights. Indian law ensures that borrowers are protected from abusive recovery practices and are given fair opportunities to repay, restructure, or settle their debts. If you’re struggling with repayments, communicate early with your lender, explore your legal options, and seek financial counselling if needed. Knowing your rights is the first step to regaining control over your financial situation.