If the borrower of an auto loan or a boat loan defaults on the payments, the lender has a right to recall the loan. If the payment is not made, the lender can repossess the collateral – the car or the boat. But the question is whether the loan can be recalled even when payments have been prompt.
There have been instances when the lender has recalled a loan when the value of the collateral was more than the loan amount due and that too when there had been no default. The reason for this could be any of the following:
If the loan contract requires that the borrower insure the car or the boat and if he has failed to do so, the lender can recall the loan.
Similarly, the contract may mention that the boat or the car needs to be registered. If the borrower fails to comply with the registration requirements, the bank can recall the auto /boat loan.
If the borrower has filed for bankruptcy, the lender can safeguard his interests by recalling the loan.
Most of the time, the recall does not result in loan repayment. The bank can then repossess the collateral subject to certain conditions:
Loan recalls when payments have been prompt are very rare and happen only in certain specific situations.