Interest on a loan once a person has died

smudger478

Hello

Can some one please clarify if interest on a loan should be frozen once a person passes away.

My mother died in October last year. she had taken a £2000 loan out in March lat year and started paying the loan in June. In all she made five payments of £111.

We had received a letter in December stating the balance owing was £1809.08, which included a short fall payment of £223.96.

When I called them last week the amount owing was now £1899 which I was told included interest and charges.

Can someone please clarify if interest can still be charged on a loan of a deceased person before I pay this amount to them.

We have life insurance cover to pay the loan but I want to make sure we are not paying any more than we are legally required to do so as the service we have received from the bank (including the "bereavement dept") has been appalling.

Thanks

Jas

Tixy

They are entitled to charge interest yes.

Sometimes banks will freeze interest & charges once they are informed that the borrower is deceased and that the executors are in the process of sorting out and finalising the estate but they are not under an obligation to do so.

smudger478

Thanks for the reply Tixy, cannot believe a company can be so money graabbing and callous - their handling of the situation has been shocking.

opinions4u

smudger478 wrote: »

Thanks for the reply Tixy, cannot believe a company can be so money graabbing and callous - their handling of the situation has been shocking.

I'd be irritated if they stopped paying interest on a dead person's savings accounts. Indeed, if the finance industry adopted a practice of cancelling interest on savings and loans for dead people I'd hazard a guess that they profit massively from it (as most estates have significantly more in savings than borrowings).

While it's nice that one or two places cancel interest charges on death I don't see that it's "callous" not to. Perhaps an encouragement for executors to move a little faster in obtaining probate.

Of course, if the estate has insufficent funds to clear the debt it's the lender ends up writing off the balance owing. Capital AND interest.

happy_bunny_2

Interest seems ok, but charges seem harsh in my opinion. Maybe ask for those back if you are feeling up to it, or at least find out what they are and how much (presumably missed payment).

Good luck

opinions4u

happy_bunny wrote: »

Interest seems ok, but charges seem harsh in my opinion. Maybe ask for those back if you are feeling up to it, or at least find out what they are and how much (presumably missed payment).

Good luck

I do agree with this, although exexutors have their own responsibilities to beneficiaries while winding up an estate. Good communication with the lender is a starting point for making sure charges over and above interest don't accrue.

AJMY

Most lenders have huge issues with defaults. If the deceased funds are limited offer a percentage of the loan as settlement say 40%. Don't know whether this is the case but under the laws of intestacy you cannot chase someone for a debt if they do not have sufficient funds in their estate. Remember anything in a single persons name can only be paid if the estate has enough funds.

In essence you cannot chase the dead for debt if there are no funds to pay them.

Check also that if the insurance had a beneficiary they are not liable for the debt unless taken out jointly.

I have had need to refer to the intestacy law recently. Worth a look

opinions4u

AJMY wrote: »

Most lenders have huge issues with defaults. If the deceased funds are limited offer a percentage of the loan as settlement say 40%.

Negotiating isn't an option.

If the estate has the funds to pay 100% then the estate must pay 100%.

Negotiating a reduced payout on the pretence that the funds aren't available within the estate and then distributing funds to other beneficiaries would be fraudulent.

antrobus

AJMY wrote: »

... Don't know whether this is the case but under the laws of intestacy you cannot chase someone for a debt if they do not have sufficient funds in their estate.

Well general speaking, you cannot chase someone for a debt once they're dead, irrespective of the "laws of intestacy", which might or not be relevant in this case, given that OP didn't mention whether or not there was a will.

You can however chase the estate for the debt, and there a specific rules that apply to insolvent estates, but since the OP doesn't mention any problems in actually paying any of the estate's debts, they don't appear to apply in this case. And if they did, and the executor/administator went around offering a "percentage of the loan as settlement say 40%" they would potentially be committing a criminal offense.

AJMY wrote: »

.Check also that if the insurance had a beneficiary they are not liable for the debt unless taken out jointly.

There is no suggestion that the insurance had any other beneficiary than the deceased.

AJMY

I didn't make reference to being fraudulent within my comments only to be aware of whom may or may not be liable for a deceased persons debt.

This point is important when settling from an estate or from proceeds from say a company death in service scheme were the benefits go to a specific person and are not part of the estate.