Loan agreements can be mind-boggling. A statement could imply something and read totally something else. Clauses, they stare at us; and yet we just sign them without a second thought. This is not to suggest that all clauses in an agreement are written with a bias against the borrower.
A loan agreement is essentially a document meant to put down everything in black and white to protect the interests of the lender and the borrower. One such clause in the agreement is the “surrender letter” from the borrower.
Under this clause, you are required to fill in the details relevant to the vehicle and also “declares” you a defaulter.
But wait a minute before you cry foul.
There are var reasons that can be cited for this clause.
A car is movable property and the factor of ‘depreciation’ is dominant in case of this asset.
Let’s see what all can be done if there is a willful defaulter of a car loan. You can probably run away with a car. Or, engage in malpractices such as getting the number changed, selling it illegally etc.
Well, this is just what the banks are safeguarding themselves against the risk of borrower not repaying the loan.
And, say you have defaulted on a payment. Proving a borrower as a defaulter through legal action at a later stage could be a cumbersome process.
Under the provisions of the clause, if you default on the loan, the bank can take possession of your vehicle after sending you a court’s notice.
And, here’s the clause, just so that you know what you may or have already agreed to, when you signed the loan agreement.
“I hereby voluntarily and without coercion from anyone, surrender the above vehicle to ___ Bank, the agent of ___ Bank in accordance with the rights vested with ___ Bank under the composite Loan Agreement (cum Hypothecation) for Car Loans and Guarantee executed between us, whose terms and conditions I have violated by defaulting on the schedule repayment of the above loan. I hereby confirm that there is no cash or other valuable in the said vehicle whose possession is being taken as aforesaid.”
A State bank of India (SBI) official said on the condition of anonymity that the borrower may not agree that he has defaulted and this may require the bank to move the courts. These clauses save banks from fulfilling this requirement. And, the bank does not take the car away immediately. If the account balance of the account used for auto debit or loan repayment is low, the bank can intimate the borrower. Within the next fifteen days of the payment date, the bank can send another notice. After that, the car can be taken away.