Who Pays the Personal Loan After the Borrower Dies? - Loan Trivia


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Tuesday 31 October 2023

Who Pays the Personal Loan After the Borrower Dies?

The insurance company may settle the outstanding loan amount subject to the terms and conditions of the policy if the borrower has purchased a loan insurance policy. The lender must be informed about the loan insurance policy and given the required paperwork for the legal heirs or executors of the borrower's estate to collect the insurance proceeds.

The personal loan if person dies, which is in the event of the borrower’s demise, must be repaid by the legitimate heirs or estate. The lender must be notified of the borrower's passing and given the required documentation, including a death certificate, a certificate of legal heirship, and a succession certificate. This information must be given by the borrower's legal heirs or the executor of their estate.

The lender will then examine the paperwork and determine the outstanding loan amount. The outstanding loan amount and any relevant interest or fees shall be repaid by the legal heirs or executor of the borrower's estate. The lender and the borrower's legal heirs may elect to use the borrower's savings account, the sale of assets, or other methods to make the repayment.

To prevent legal issues and establish loan repayment plans, it is advisable to notify the lender as soon as possible about the borrower's passing.

What is a personal loan tax exemption for salaried employees?

There is no personal loan tax exemption for salaried employees. Personal loans are not taxable because they are not viewed as sources of income. Yet, personal loan money can have tax ramifications based on the loan's intended use.

Tax rules and regulations may occasionally change. Therefore it is advised to speak with a tax expert or a chartered accountant for further details on the tax consequences of personal loans.

Personal loan tax benefits

Because they are not regarded as a kind of income, personal loans generally have no tax advantages. In most cases, you cannot deduct the interest you pay on personal loans from your taxes. Nonetheless, there are some circumstances in which using money from a personal loan may qualify for personal loan tax benefits.

  • Renovation or purchase of a home: Under certain circumstances, the interest paid on a personal loan used for the renovation or purchase of a property may qualify for a tax credit under Section 24 of the Income Tax Act.

  • Business uses: Under Section 36 of the Income Tax Act, the interest paid on a personal loan used for business purposes may be tax deductible.

  • Education costs: Under Section 80E of the Income Tax Act, the interest paid on a personal loan may be deductible if used to pay for the higher education of the borrower, their spouse, children, or other dependents.

A tax expert or chartered accountant should be consulted for more information on the tax ramifications of personal loans because the tax benefits stated above are subject to restrictions and limitations.


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