Personal loan stress: How can one tackle recovery agents?

Kolkata: Debt stress is one of the dangers that lurk behind every personal loan. Personal loans are unsecured loans ie, debts which are sanctioned without the applicant furnishing any asset to secure the loan, which makes the proposition risky to any bank or NBFC, especially when compared to home loans or vehicle loans. To cushion that additional layer of risk, lending institutions charge a higher interest rate on personal loans.

Servicing the higher interest becomes rather stressful for a number of borrowers. Soon stress builds up and they default on EMIs. This is when recovery agents step in raising harassment levels for the defaulter. In this situation, one should be aware of the fundamental rights and responsibilities of an individual.

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By the way, Debt Recovery Agents are representatives of lending institutions who conatct the borrower and are entrusted with the responsibility of recovering the outstanding amount of debt from the borrower. Several years ago the RBI stepped in after numerlous complaints emerged of strong-arm tactics by these agents to recover money that amounted to hounding a borrower. These agents are legal but they cannot resort to any practice that violates the RBI code.

To begin with banking regulator Reserve Bank of India has issued instructions that are to be adhered to by lenders so that the borrowers don't have to face strong-arm debt recovery practices and mental/emotional harassment from agents acting on behalf of the lending institutions.

There are some well-defined steps to keep the recovery agents at bay. Needless to say, the best way is not to default at all on debt repayments. But in case a situation develops that can lead to that eventuality, there are a few advices from experts.

Rights and legal limits: Recovery agents are just not allowed to threaten any borrower. Neither can they storm your house or office, meet you at any time they wish. If they harass a borrower, the victim can move to file a complaint according to integrated ombudsman scheme of RBI. According to the rules, this programme works towards resolution of such disputes within 30 days.

Debt validation: Experts point out that the borrower should maintain a record of all correspondence with the debt collection agents in writing. If they call on your mobile phone, it is not advised to admitting debt on the phone. The borrower being contacted should demand a letter for validation of the debt demand. Also, experts point out that payments should not be made after the initial contact. A validation letter should contain all details of the loan. These can include the outstanding amount, the interest rate, the time that has passed, names of the lender etc. Detailed records: All telephone calls, messages over phone, WhatsApp, emails and letters that debt recovery agents might send you should be meticulously preserved. Both paper correspondence and electronic communication should be kept.

Negotiate carefully: If there is any dispute they an be dealt with and these records will become useful. One should discuss with a qualified personal financial advisor before negotiating with recovery agents. Some could be receptive to the idea of restructuring of loans and renegotiating repayment terms. The new terms must be carefully weighed taking into account your monthly cash flow and necessary expenditure. Taking everything into account, one should negotiate a practical repayment roadmap.

Professional advice: An average borrower does not encounter recovery agents regularly, and therefore, negotiating with them could be a bit overwhelming for many. If the situation turns out to be moving that way, it is advisable to take the help of professional finance advisors. It is often difficult for an individual who is already passing through financial crisis to decide objectively and negotiate with a clear mind and vision. A qualified financial strategist and/or legal expert can handle the situation much better.