What Happens to a Personal Loan if the Borrower Dies?
Published on : July 26, 2023

In this guide, we will provide all the information regarding what happens to outstanding personal loans if the borrower has passed away.

When someone takes out a personal loan, they do so with the intention of repaying it over a period of time. However, life is unpredictable, and unfortunate circumstances like the borrower’s demise can arise. It is natural for people in these circumstances to question what will happen to the personal loan if the borrower passes away. A few of the elements that will influence whether the loan will be repaid include the terms and conditions of the loan agreement, the existence of a cosigner or guarantor, and the applicable laws in the jurisdiction.  Here we will address the potential outcomes and responsibilities for both the borrower’s estate and the lender when a personal loan borrower dies.

How do Lenders Recover Personal Loans?

Lenders are not allowed to demand repayment of an outstanding personal loan from the legal heirs of a deceased borrower. Personal loans are unsecured, meaning lenders cannot take possession of personal assets to recover the funds. As a result, in such situations, lenders typically consider the outstanding balance as a loss and categorise it as a non-performing asset (NPA).

It is for reasons like this that many lenders consider the age of the borrower while evaluating their application for a personal loan.

If a personal loan involves a co-applicant or co-signer, that person is responsible for paying the remaining loan amount after the primary borrower’s death. However, it’s important to note that there is no legal requirement for the deceased borrower’s legal heir to repay the loan or take ownership of the property.

Procedure to Repay the Personal Loan Debt after the Demise of the Borrower

In case of the sudden demise of the borrower, there is a procedure that the family of the borrower has to follow.

  • After the demise of the borrower, ensure to inform the lender the EMIs will be considered to be paid in the normal format.
  • Request the lender to settle the complete outstanding amount.
  • Check if the borrower has personal loan insurance or life insurance. It can be used to pay off the debt.
  • If there is no insurance, then the loan administrator should check with the borrower’s family possessions, any property or land they owned.
  • If the personal loan is only in the name of the borrower, the lender will initiate the NPA process.


Personal loans are unsecured loans. This means that in cases where the borrower of the personal loan has passed away, the lender cannot recover their loan from the legal heirs of the borrower. However, it is important that the borrower’s family let the lender know about the person’s demise. If the lender is not informed, then they will continue to expect repayment as per the terms of the loan. Moreover, if the borrower had agreed to an auto-debit of the EMI amount from their bank account, the lender will continue to deduct the money from the account even after the borrower has passed away. The lender will only write off the loan as an NPA once they are informed of the demise of the borrower.