What happens when a borrower fails to pay a gold loan?


Gold loan is a loan secured against gold. Gold loan is a secured loan provided by financial institutions to borrowers to meet their immediate financial requirements. In return for the loan, the borrower has to give collaterals in the form of gold. The gold will be given back once the loan is repaid with interest.

But due to some reason, sometimes the borrower does not pay the loan on time. Not paying loans on time may lead to consequences, and these consequences vary from lender to lender. Even the actions taken by the lenders vary. Hence it is essential to pay gold loans on time.

If not then below is a list of consequence you may face for defaulting on gold loan:

Credit score goes down

A credit score shows your history with regards to loan repayments. When you apply for a loan to a bank, it first checks your credit score rating. After going through your credit score, the bank will pass or reject your loan application.

So a default on the gold loan will lead to the downgrading of your credit score. Even if you have cleared the loan, the banks will charge more interest.

Loan repayment reminders

Even if you miss single loan installment, reminder calls will start come in till you make the payment. Even your lender will try to get in touch with you with every possible means of communication that you have registered with them. This is done so that the borrower gives no reason that he/she didn’t receive the reminder.

High Penal interest

Many lenders even charge penal interest if loan installments are not paid on time. These penal interests are usually over and above the normal interest rate than the borrower pays for a gold loan. The rate at which you will be charged varies from one lender to another. However, it is usually between 1% and 7% per annum.

Lenders may take legal action

While lenders generally allow a single or two slip-ups in making the loan payment. But if the problem continues for three months consecutive months or more, the borrower has declared a Non-performing Asset (NPA). This label that bars you from getting any loan in future.

If you keep on ignoring constant reminders given by your lenders, then your lender will send you a legal notice at your registered address. The notice will communicate you the need to pay up the outstanding amount soon within a certain period of time.

Your collateral gets auctioned

If gold loan installments are not paid on time, your gold articles will be auctioned by the bank. Non-payment of the outstanding balance of the gold loan even by the final notice date will put your gold articles in danger. Auctioning is the last resort for lenders if you do not pay your loan installments. There is no chance for you to argue against it as your lender can lawfully take possession of the gold articles to recover the loan amount.


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