What are the consequences of missing your gold loan repayment?

Borrowers must remain vigilant about their repayment schedules and communicate proactively with lenders if they encounter difficulties

In recent years, gold loans have emerged as a popular financing option for millions of Indians, offering quick access to funds by pledging family gold. However, failure to meet repayment obligations can have consequences that borrowers should be aware of.

 

What is gold loan

 

Gold loan (also called loan against gold) is a secured loan taken by the borrower from a lender by pledging their gold articles (within a range of 18-24 carats) as collateral. The loan amount provided is a certain percentage of the gold, typically up to 80 per cent, based on the current market value and quality of gold.

 

“The flexibility of the gold loan is much superior than any other loan where the customer doesn’t have to worry even if one or two days if the repayment is missed, he can come and regularise the loans again,” said Jijith Raj, Business Head at Indel Money.

 

What happens when you miss a gold loan instalment?

 

Repeated reminders from the lender

 

As the due date for your gold loan payment nears, the lender will send multiple reminders. These reminders will come via emails, text messages, and eventually even letters. 

 

Penal interest charges

 

If payments are missed, the lender will impose an additional interest on top of the regular rate. This extra charge, known as penal interest, typically ranges between 1 per cent and 7 per cent per annum and varies depending on the lender. The penal interest is applied to the months where payments have not been made.

 

Impact on credit score

 

Defaulting on your loan will significantly damage your credit score, with the default being recorded in your credit history. This can make it challenging to access future credit, as many financial institutions may reject applications from borrowers with poor credit scores.

 

Auctioning of gold

 

Failure to consistently repay your gold loan and ignoring reminders or notices can result in legal action. In such situations, the lender may auction the gold you pledged as collateral to recover the unpaid loan amount.

 

Preventive measures

 

Proactively communicating with lenders about financial challenges.

 

Requesting restructuring of loan terms before defaulting.

 

Exploring alternative funding sources to prevent auction of pledged gold.

 

Seeking professional financial advice for debt management.

 

Experts suggest borrowers should consider using tools like EMI calculators before taking out loans to ensure they understand their repayment obligations fully.