If you’ve taken out a personal loan, it’s crucial to understand the potential consequences if you find yourself unable to repay it. 

While secured loans like home or car loans allow lenders to claim the collateral, unsecured loans such as personal loans don’t provide immediate access to your assets. However, in cases of default, lenders have legal avenues to recover their dues. 

In this blog post, we will explore what happens when personal loans become a Non-Performing Asset (NPA) and how borrowers can navigate this situation.

Types Of Non-Performing Assets (NPA)

Before we delve into understanding what happens when personal loan become a Non Performing Asset (NPA), it’s essential to grasp the different types of non-performing assets and their classifications based on the duration of their non performance.

Sub-standard assets: An asset is classified as a sub-standard asset if it remains as a non performing asset for up to 12 months. These assets are characterized  by the existence of credit weaknesses that may lead to the borrower’s inability to repay the loan.

Doubtful assets: An asset is classified as a doubtful asset if it remains as bank non-performing assets for more than 12 months. Doubtful assets have all the weaknesses inherent in sub-standard assets, with the added characteristic that the weaknesses present make the collection of the debt highly questionable and improbable.

Loss assets: An asset is considered a loss asset when it is “uncollectible” or has such little value that its continuance as a bankable asset is not suggested. However, some recovery value may be left in it as the asset has not been written off wholly or in parts.