What Happens If You Don't Repay Gold Loan?

A gold loan is secured against gold. Interest rates are much lower than personal loans. You can get a gold loan at 11-12% a year, while a bank charges 14-22% for a personal loan. Farmers get gold loans around 8%.

You can get a gold loan with a poor CIBIL score as gold serves as collateral. There’s no need for income proof to get gold loan. With all the benefits comes an important question. What happens if you don’t repay the gold loan?

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What Happens If You Don't Repay Gold Loan?

What is a Gold Loan?

A gold loan is sanctioned by banks and NBFCs to meet immediate financial needs. You pledge gold articles as collateral and repay the borrowed amounts with interest at the end of the tenure.

Sometimes due to tough circumstances, it’s difficult to repay the gold loan on time. However, there are consequences if you fail to repay the gold loan on time. Let’s look at what happens if you fail to pay a gold loan on time.

• Credit Score Turns Bad

The credit score is a 3-digit score which shows loan repayment. It basically tells the lender if you are prompt with loan repayments. Banks and NBFCs send your repayment data to credit bureaus like TransUnion CIBIL, Equifax, Experian, and CRIF High Mark. They prepare your credit report and assign a credit score.

If you don’t make timely repayments or default on loans you get a bad credit score. Lenders won’t sanction any new loans if you have a bad credit score. The black mark remains on your credit report for years. If you manage to get a loan, the interest rates could be really high.

• Penal Interest Gets Imposed

Banks and other lenders charge penal interest rates for time overdue. This is over and above the normal rate, you and other borrowers pay for gold loan. Interest rates vary across lenders. The penal interest is around 1-7% a year.

• Banks Could Take Legal Action

Banks don’t have a problem if there are a couple of slip-ups in loan repayment. If a default happens for 3 consecutive months is where the problem lies. If you ignore reminders from lenders, you get a legal notice to send to your address. You are informed on when to repay the debt obligation.

• Gold Gets Auctioned

You have pledged gold when availing of a gold loan. You could lose these beautiful gold ornaments and gold coins if you fail to repay the gold loan. If you don’t repay the gold loan even by the final repayment date, you lose the gold article.

The lender will auction the gold ornaments and recover the dues. There’s nothing you can do as the lender lawfully recovers the dues by selling your gold.

How To Stop Loan Repayment Default?

You are struggling with the gold loan repayment. What can you do under such tough circumstances?

• Inform the lender on the issue and he would suggest ways to repay gold loan EMIs on time.
• You could request the lender to increase the gold loan tenure.
• It’s great to consolidate debt. Do remember that interest payout along with new loan EMIs must be lower than the original loan.

Gold loans have tenure of 12 months. You can opt to repay the gold loan through monthly EMI or interest only. No matter which method you choose, you would have to renew the gold loan by paying a processing fee and also the difference if any due to a fall in the price of gold.

Banks could offer tenure up to 36 months. If you are not able to repay the principal, renew the gold loan by paying the processing fee and the difference in the gold price.

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