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Carrying a credit card requires systematic use. Like any other credit card companies, they don’t offer errors. Eventually when you miss card payments, you’ll be hit by heavy interest charges and late fees. The consequences may even get more serious and end up taking you into credit card default.
Let’s take a closer look at what it means to be in default and how you can escape such a trap.
Prior to obtaining a credit card, you have to sign an agreement containing a few terms and conditions that you agree to before you get access to the card. According to the terms, credit card payments must be made on time.
If you neglect or avoid paying the amount on time, your credit card company will call you to remind you to make the payment. After a certain period of time, lenders assume that you’re avoiding your payments. In this case, a final chance is given to you by the credit card companies which may vary or till 180 days.
During the time slab given to you, your account is considered to be in default. Hence, your lender/bank/institution considers the loan to be a bad debt.
Credit card default is never a good option. It may have a major impact on your financial stability. Following are the outcomes or consequences of credit card default.
After a credit card company regulates that you’re being defaulted on your credit card, they’ll transfer your data to a collection agency. A collection agency is a third-party agency that is hired by the authorised banks and NBFCs to collect the debt from the defaulter. Their debt collection services are professional and experienced. At this point, you will have to deal directly with agency, which may include baggage of harassment calls, & threats from them.
In accordance with the law, harassment calls can be curbed by taking action against the harasser or asking for help from them.
If your creditor is determined to collect debt payment, they may sue you by filing a legal complaint against you. This means you’ll have no choice, but compulsory represent yourself for the hearing in the court.
Wage garnishment and visiting court might be unpleasant and take a long time, but a decline in your credit score may have an immediate impact for long.
Once you’re in default, your creditor will approach the Credit bureaus. Bureaus are responsible for looking into the matter of non-payment as extreme default may have a severe and negative effect on your record.
Defaulting on credit cards has the potential to lower your credit score by hundreds of points, making it more complicated for you to get further credit in future from the bank or other financial institution.
Once you’ve missed your credit card payments for more than 60 days, you will eventually see a hike in your interest charges. Higher the charges, the more the debt grows.
Credit card default is the costliest mistake a person can ever make which is not easy to fix. A poor credit score on your credit report indicates that you have debt, and this may result in permanently damaging your credit report, and even make it impossible to obtain further loans.
A default on your credit record could be one of the factors that prevent you from getting a new loan.
Even so, in a few cases where the bank finds out even after years of lending money and is unable to recover it from borrowers, there is a chance it can write off your debts. This means that a certain amount will be recovered from the bank and the rest will be written off.
If you avoid or neglect making payments for your credit card loan as per the terms mentioned, then the bank will start the recovery procedure against you.
They will persistently ask you for payment until you don’t pay them the loan. Defaulting on credit card payments will result in the bank or creditor taking legal action to recover the payment.
Legal issues can lead to anxiety, stress, and even identity loss. This may not be enough as it will add to the financial strain as it will be necessary to hire an advocate for the response.
The act of avoiding loan repayment constitutes a breach of contract. A lender does not have to commit a crime to recover an overdue loan, but he can approach a civil court to do so.
If a loan has not been repaid for more than 180 days, the lender is allowed to file a case against the defaulter under section 138 of the Negotiable Instruments Act 1881.
Occasionally, borrowers may not be able to repay their loans due to unforeseen circumstances. In such cases, it will not be considered as ‘cheating’ but instead the lender may work with the borrower by modifying the repayment circumstances to finalise that the loan is repaid.
As per the RBI guidelines a ‘wilful defaulter’ is one who is:
A credit card default is a person who fails to pay credit card bills on time. Now many of them are not aware of the punishment they face when they’re in default.
Serious legal action is taken against the defaulter when the case is in favour of creditors or the banks which makes it difficult for the defaulter to get out of it.
As a maximum punishment for credit card defaulters in India, the court may sentence you to jail in severe cases. Hence, it is important to make the payment on time and prevent any future problems.
If the cardholder neglect to make the payment within the due date for the credit card, banks usually send a legal notice to the person. Such notices are sent to make the defaulter aware of the fact that he had failed to make the timely payment and the person is defaulted. Such legal notice for credit card payment is an important proof in the court of law. Such notices can create a critical situation for the person as well as to the banks and courts.
However, when you’re defaulted by the financial institution, there are some other measures that a defaulter can take:
1. You can go for one- time settlement and pay the amount in one go or discuss in terms of monthly instalments for a short duration
2. You can take a legal assistant to help you reply to the notices to the banks and financial institution. It is important to send a reply to legal notices for a credit card.
While taking up a loan, the borrower must ensure that they are in a position to pay back the loan while completing their requirements.
It is also important to choose a right lender who can offer quick and hassle-free personal loans. The rate of interest shall be lower than other loans, as it may help to make easy payments. Make sure that you take up a loan which may extend up to 60 months.
Moreover, an eligibility check will allow the applicant to choose the amount of the loan based on the terms and conditions.
When a cardholder fails to pay their credit card bill as per the agreed-upon terms, they are considered in default.
Late payment fees, interest charges, a negative impact on your credit score, legal action by the bank, and harassment by collectors are some of the consequences of credit card default in India. When you are struggling to make credit card payments, it is important to avoid defaulting.
Banks can take legal action against credit card defaulters in India if they fail to make payments in accordance with the terms and conditions of their credit cards.
There are legal provisions in place in Indian law which allow Indian banks to take legal action against defaulters when it comes to credit card debt. As a result, you are able to file a civil suit in court as well as initiate criminal proceedings. If you owe the bank money, you may also be able to recover it through the use of debt recovery tribunals in order to get your money back.
Before taking legal action against a defaulter, banks must provide a written notice of default. In the notice, the default amount and the payment period must be stated. If the defaulter requests it, banks are required to provide a reasonable repayment plan.
If you receive a legal notice from the bank, it means they are taking legal action to recover your debt. In order to avoid further penalties, you should act promptly. Consider paying the dues, negotiating a payment plan, or disputing the charge. It can be beneficial to seek the advice of a legal or financial professional.
It is possible for a bank to file a Section 420 lawsuit in the event that the defaulter intentionally cheated or deceived them in order to avoid repayment of the debt.
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3 thoughts on “What legal action can a bank take against a credit card default in India?”
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can SBI credit card raise claim after 18 years of last payment. I stopped any payment in 2006 and now at 2023 they are asking for an absurd amount which is 100% false. what should I do?