- What will happen if you don’t pay a Gold Loan? What does a lender generally do in such cases?
- Know about all the consequences you could face and methods to ensure timely repayment of Gold Loan.
Lenders provide different kinds of loans to individuals who, in turn, need to repay them over a fixed tenure. Among those different kinds of loans, Gold Loan is a quite popular option among customers as it enables them to get a loan amount against their gold ornaments as security. Customers can have this question – What if they don’t pay a Gold Loan?
This question is so common among customers, especially in the case of a Gold Loan. The reason behind this: Customers (mostly women) put their beloved ornaments as the security, and the lender provides the required loan amount against it. Also, Gold Loan has pretty lenient eligibility criteria due to which customers with low scores can also apply for it without any trouble. All they need is pure Gold, and lenders will provide them the required money, and that too, at affordable interest rates.
So, if you are thinking of applying for a Gold Loan and worried about what will happen if you don’t pay a Gold Loan due to some unforeseen circumstances, stop worrying. We will be covering everything related to this question so that you don’t have any doubt left in your mind. Keep reading to know more!
What Will Happen If You don’t Pay a Gold Loan?
Before knowing what will happen when you are unable to pay a Gold Loan, it’s important to have a brief knowledge about Gold Loan. As we said, Gold Loan is a secured loan which means you need to pledge your gold against the loan amount. Many people opt for a Gold Loan due to the affordable interest rates as compared to other loans. Also, gold ornaments remain safe in the lender’s secured vault. Gold Loan interest rates range from 10% to 16% per annum on average and vary from one lender to another.
Lenders provide a flexible repayment period that can be as short as 12 months and can go upto 84 months (7 years). Within this period, customers need to repay the loan amount. But when the loan is not paid for a long time, customers will have to face some repercussions for the same. We are showing all the possibilities that can happen if you don’t pay a Gold Loan on or before the due date.
Reminders and Legal Notices
The first step a bank or Non-Banking Financial Company (NBFC) will take in case you haven’t paid your gold loan repayments on time is sending reminders about the same. Generally, lenders don’t have any problem if you make one or two slip-ups in repayments. But if you happen to miss three consecutive repayments, you will first get a reminder about the repayment via various methods such as email, letter, call, SMS. If you are facing some emergency, you can reset your repayment schedule only if your lender agrees to do so.
If you do not make the repayment even after the reminders, the lender will send you a Legal Notice. This notice will comprise the information about when to repay the due loan amount and also the details about the auction of gold, which can happen in case of non-repayment. If you don’t want to face legal action, you should get in touch with your respective lender on receiving the earlier reminders.
When you don’t pay your gold loan, lenders may also charge a penal interest for the remaining time. So what is this Penal Interest? Penal interest is the interest rate over and above the normal Gold Loan interest rate. For example, if a borrower has failed to pay the loan amount with interest and other charges on the due date or within the grace period given, lenders will charge a penal interest on the due amount. This may vary from one lender to another.
So, how will this impact your repayment? Well, due to added penal interest over and above your regular interest rate, you will have to pay a higher repayment amount. So, it would be better to pay your dues on time if you want to save yourself from an unnecessary interest amount.
Auction of Gold
Lenders provide the loan amount against your gold ornaments. In case you are unable to pay the Gold Loan, the lender has all the right to sell or dispose of in the Public Auction. This is the primary reason why lenders put your gold as the security in the first place. The lender will recover the loan amount with the money coming from selling your gold. Remember that it is always the last step when you don’t pay a Gold Loan and not even contacting your lender about your inability to pay the loan amount.
Before a few weeks from the Auction Date, the lender informs the borrower about the same. If a borrower still does not respond, lenders evaluate the gold. After the evaluation is done, the lender publishes the auction in the paper with all the information related to the borrower, due loan amount and pledged gold jewellery. After the auction, when the due amount is being settled, the lender returns the balance and rest of the ornaments (if any) to the borrower. In case, the due is not being settled yet (due to decreased prices of Gold), the lender has all the right to sue the borrower for the remaining loan amount.
Negative Impact on the Credit Score
It’s true that even people with no credit scores can easily get a Gold Loan as it’s a secured loan. But your credit score can be affected either positively or negatively after you have opted for a Gold Loan. If you pay your dues on or before the due date, your credit score will improve. But if you don’t make timely repayments or default on your gold loan, your credit score is bound to be affected negatively.
Continuously missed repayments can affect your credit score badly. A bad credit score indicates that you are inefficient when it comes to handling debt. A poor credit score will also hurt you in the future while opting for some other loans as missed repayments and defaults remain on your credit report for years. Lenders may charge you higher interest rates on loans because of your poor credit score. Worst, lenders will not provide you any fresh loans if you have a bad score. So, if you don’t want to face any of it, you should always pay your dues on time.
How to Prevent yourself from Loan Repayment Default?
So, you must have understood about the repercussions you might face if you don’t pay a gold loan. Thinking about how to make sure that you pay your Gold Loan on time? Well, there are a few methods with which you can ensure that you don’t face any of these hard consequences. We are showing all of them below. Please have a look.
Choose Affordable Interest Rates
A lot of times, customers choose higher interest rates beyond their repayment capacity which makes it tougher. Higher interest rates will lead to a higher EMI amount. So, if you want to pay your dues on time, it’s important to choose the lender that can offer you affordable interest rates. Also, try to opt for a shorter tenure if your repayment capacity allows you to do so. We are showing some of the gold loan lenders that provide affordable interest rates. Please do check.
|Gold Loan Lenders||Interest Rates (In Per Annum)|
|Muthoot Finance||12.00% - 27.00%|
|ICICI Bank||10.00% - 19.76%|
|HDFC Bank||9.50% - 17.55%|
|State Bank of India (SBI)||7.50%|
|Manappuram Finance||12.00% - 29.00%|
|Union Bank of India||7.00% - 9.60%|
|YES BANK||9.00% - 15.00%|
|Kotak Mahindra Bank||10.50% - 17.00%|
Choose the Suitable Repayment Method for yourself
One of the best things about a Gold Loan is that lenders provide a wide range of repayment options to choose from. A gold loan provides much-needed flexibility when it comes to repayment. So, if you choose a suitable method, you can surely prevent yourself from the missed repayments. There are mainly four Gold Loan Repayment methods. Have a look.
- EMI Payment – Pay monthly installment during your tenure which will consist of both principal and interest. You can calculate this using the Gold Loan EMI Calculator.
- Advance Interest Payments – Pay full interest payment upfront and principal amount at the end of the tenure
- Interest Payments at Regular Intervals – Pay only the interest amount at regular intervals of Monthly/ Quarterly/ Semi-yearly/ Yearly and pay the principal amount at the end of your tenure
- Bullet Repayment – Freedom to pay not a single rupee during the tenure. Pay both principal and interest amount at the end of the tenure
Contact your Lender
The first and foremost thing you should do when you are unable to pay the gold loan is to contact your lender from where you have taken the Gold Loan. You can tell the details about your situation and why you are unable to pay the loan amount. The lender may offer you an extended tenure so that you can repay the loan amount without any trouble. As we said before, you should get in touch with your lender as soon as you receive reminders and notices about the repayment and try to find a common ground.