CHENNAI/MUMBAI: Handing over keys to your house may help you out of a home loan during financial distress, but turning over the car to lenders won’t get you off the hook. A borrower who availed of a Rs 11 lakh auto loan in 2008, only to have the car repossessed after few months of default, was shocked to receive a repayment notice for Rs 18 lakh, which included Rs 1.75 lakh as parking charges.
The incident is a one-off case as the borrower had left town after repossession without contacting the bank. The incident, however, does highlight how car loan obligations, despite hypothecation of the vehicle, can snowball if defaults are not addressed in time. Unless you’re careful with the paperwork, you could end up with bolt-from-the-blue notices from the debt recovery tribunal (DRT), the judicial body that financiers approach when loans go bad.
So what should you as the customer look out for if you are asking the financier to repossess your car? Sources in the financing industry say the most important thing is to make sure you get a post-sale letter from the lender within 60-90 days of the repossession.
If due to financial difficulties a borrower has no option but to surrender the car and close the loan book, it would make sense to follow the process closely with the financier. “Typically once the customer surrenders the car, the finance company sells the asset and adjusts the realization against the loan outstanding,” said the head of another major auto financier. “If the loss is large—the difference between the loan outstanding and the car resale price—the finance company may decide to appeal for recovery of the loss in which case the DRT will inform the customer accordingly.”
Banks and auto financiers say they normally send out a post-sale letter to the customer within 60-90 days giving details of the entire transaction. “Only if the customer does not respond and the amount outstanding is huge do we approach the legal route where the customer also gets a chance to explain himself,” said head of the auto finance company. “So the customer should get a post-sale letter and if in the unlikely instance the financing company approaches the DRT, intimation from the judicial body as well.” To ensure that intimations —either from the company or the DRT—are not lost all contact details should be updated with the bank even after repossession.
If lenders are convinced of the borrowers intent to repay, they may not repossess but help with solutions in case of a default. “Right now despite the slowdown we repossess around 100-150 cars a month which is miniscule,” said the finance firm head. Given the difficult market scenario, financiers actually offer “refinancing options” to customers who may not be able to service one chunk of the car loan. “We offer options which help him to pay it back over a period of, say, 24 months because repossession is really our last option. It is not good for the customer and it’s bad for the brand.”
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Courtesy : Times of India