Can a Personal Loan be Written Off?


  • When does a Lender Write-off the Personal Loan?
  • What happens when your loan is written off by the lender? Know all of them in this post

A lot of individuals opt for a personal loan to fulfill their various financial needs. Borrowers have a definite tenure to pay the loan amount back to the lender. But there are so many people who do not repay the loan amount back due to the lack of funds. So what happens when a borrower has been unable to pay the personal loan amount back to the lender? In such situations, can a personal loan be written off?

Loan write-off is the process through which banks remove their bad loans from their balance sheet to minimize the overall tax liability and the recovery process will keep happening to get the loan amount from the borrower. So, when an individual asks the question that “Can a personal loan be written off?” then the answer would be ‘YES’.

In this article, we would tell you everything about the situation when a personal loan can be written off, what exactly is the personal loan write-off, and problems you will face in such situations. Keep reading to know more!

So, What Exactly is a Loan Write-off?

Banks and financial institutions provide a personal loan facility to individuals so that they can fulfill their various personal needs. A personal loan is an unsecured loan that means a borrower does not need to pledge any kind of security against the loan amount. That’s why lenders rigorously check the eligibility of the borrower to check the repayment capacity. Lenders expect from borrowers that a loan will be paid off within the fixed tenure chosen by the borrower. But sometimes, a borrower is unable to pay the loan amount not only within the tenure but even also after the tenure.

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Such personal loans are known as bad loans or non-performing assets (NPA). And lenders want to have as minimum NPA as possible in their balance sheets. So, you must be thinking about when does a loan turn into a bad loan? If a borrower has been doing repayment defaults for a minimum of three of the consecutive quarters, a loan turns into a bad loan and this loan can be written off.

But as we said a bank can still recover the loan amount from the borrower by legal means and this is an advantage of writing off the personal loans. Any loan amount recovered after writing off the loan is regarded as the profit of that particular lender in that financial year which does look good on the bank’s Balance Sheet. Also, when a lender writes off the personal loan, a borrower is still liable to repay the loan amount, hence lenders do not lose interest in the loan amount given to the borrowers. By writing a loan off, lenders are able to remove these personal loans from their balance sheets and can thus reduce their tax liabilities on such loans.

Problems You Face When a Bank Writes Off your Personal Loan

So, until now you must have got the answer to your question about can a personal loan be written off and also what exactly is a loan write-off. But it is important to know about the problems that you may face if your personal loan is written off as it is not something positive when it comes to your financial side of life. You must understand the gravity of a situation when a lender writes off your personal loan. We are mentioning some of the problems you may face below so that you can understand them and act accordingly. Do check them!

  • After providing a loan amount to a borrower, lenders expect to get it back within the fixed tenure (months or years). But if a borrower does not repay the loan amount back, the lender waits for some months after the tenure. If a borrower does not repay the loan amount back even in that time, the lender writes off the loan and reports this to the credit bureau it is associated with.
  • When you have a ‘Written Off’ mentioned against your loan in your credit report, it will reduce your chances of getting any kind of loan or credit card in the future. In simple words, it decreases your creditworthiness significantly. As this status states, you were unable to repay your previous personal loan and it will be highly risky for a lender to provide you a fresh loan or even, a credit card for that matter.
  • Your Credit Score will also take a major hit if a lender writes off your personal loan and that is also a negative point regarding your financial aspect of life. Lenders don’t trust individuals with low credit scores.
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So, these are the problems you will face on your personal loan getting written off by the lender. You must be thinking about the steps you can follow to pay your personal loan on time and a situation of Loan Write-off would not happen in the near future. In the next section, you can have a look at all such methods by which you can make sure to pay your loan on time. Do check them!

Methods to Ensure Personal Loan Repayment on Time

By making your personal loan repayment on time, you may save yourself from facing a Loan Write-off situation. Here are some of those methods.

Opt for Lower Personal Loan Interest Rates

Interest rates highly affect your repayment amount in case of any loan. Higher interest rates would result in a higher EMI amount. So, if you choose a lender that can provide a personal loan at affordable interest rates, the EMI amount will be within your limit and it will be easier to repay the loan on time. Always compare several lenders before finalizing the suitable lender for you.

Choose the Loan Amount within your Repayment Capacity

You should always choose the loan amount within your repayment capacity and only what you need. Opting for a higher loan amount without any need may result in a delay in repayment, which may lead to default later on. To know the suitable loan amount according to your monthly income, you can use the Personal Loan Eligibility Calculator that is an efficient tool to know the maximum loan amount you can get. A suitable loan amount will automatically help keep your EMI amount within your reach and you will be able to pay it on time.

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Limit on Unnecessary Spendings

An individual also needs to put a hold on their unnecessary spendings with credit cards to make the repayment on time. When an individual spends less money on unnecessary things, he or she will have enough money to repay the loan amount on time. And, there will be no personal loan write-off situation.

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Personal Loan Interest Rates September 2023
Fullerton India12.00% - 24.00%
HDFC Bank10.75% - 14.50%
ICICI Bank10.75% - 19.00%
IndusInd Bank10.25% - 26.00%
Kotak Bank10.99%
RBL14.00% - 23.00%
Standard Chartered Bank11.49%
Tata Capital10.50% - 24.00%
Home Loan Interest Rates September 2023
Axis Bank8.75% - 9.15%
Bank of Baroda8.50% - 10.60%
Citibank8.75% - 9.15%
HDFC8.50% - 9.40%
ICICI Bank9.00% - 9.85%
Indiabulls Housing Finance Limited8.65%
Kotak Bank8.85% - 9.40%
LIC Housing8.50% - 10.50%
Piramal Capital & Housing Finance10.50%
PNB Housing Finance8.50% - 10.95%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI9.10% - 9.65%
Tata Capital8.95% - 12.00%