What Happens to Personal Loans When the Lender Dies?

What is a Personal Loan?

A Personal Loan is defined as an installment offered by various private and public entities or bank institutions to provide financial assistance for its applicants. It is given to qualified applicants to mostly sustain their basic needs with a guarantee that the loan amount together with its interest rates and other additional fees or charges will be paid under certain terms and conditions.

Because money is involved, a personal loan is subject to legal proceedings especially if deemed necessary just like when (1) payment is concerned; (2) the loan is secured; and (2) a borrower or lender dies.

What Happens to Personal Loans when the Lender Dies?

In particular cases, what happens to personal loans when the lender dies varies depending on the legal agreement of both parties. The following, however, are the typical consequences which occur when the lender dies:

Everything Remains As It Is

When a borrower dies, the outstanding debt remains as a debt and is just passed on as a responsibility of either the loan co-maker, guarantor, or will be paid through the assets that the principal borrower owns. What happens to personal loans when the lender dies apparently work the same way. The borrower still owes the same exact amount of money and is expected to pay the loan in accordance with the agreement signed by both parties.

Promissory Note will Take Effect 

If the debt is recorded, a legal contract is most likely provided which determines all necessary details regarding the loan. This includes a promissory note which will then be effective and taken into consideration when the lender dies. Depending on what the borrower has promised, the borrower could still face legal consequences, should he/she fails to commit and pay the loan even if the lender has died.

Loan as a Gift

In some cases where it is not clearly stated that the borrowed money is indeed considered as a loan, there is a possibility for it to not be considered as a loan. Having said that, when the lender dies and the loan undergoes an investigation, the court might allow the borrower to turn the loan into a gift for as long as there is not enough evidence which proves that the borrowed cash is recognized as a loan.

Conclusion

The death of a lender does not put an end to the debt of a borrower. Despite the possibility that the borrowed money could be taken as a mere gift, it does not effectively work in some cases and all the time. In typical situations, the borrower still owes the money and is required to pay the loan based on his/her agreement with the lender because the balance of the debt will still most likely be addressed through the lenders’ estate upon the provision of national laws. Thus, to determine whether or not the aforementioned cases are applicable to your situation, it is still better to seek legal advice.