What happpens when you fail to repay a Gold Loan

In India, there are a number of lenders who offer gold loans. A gold loan is a form of credit where you can pledge your gold ornaments, coins, bars, etc. and avail a loan in exchange. The interest rates charged for gold loans are lower than that of personal loans as they are secured short-term loans. 

However, if you do not pay off your debts on time after availing a gold loan, you might have to lose your gold permanently. Here is a list of factors that you should keep in mind. 

List of things to be prepared for in case of non-payment of gold loan instalments 

When you fail to repay your gold loan, be prepared for the following: 

1) The lender will send you repeated reminders 

The lender of your gold loan will get in touch with you as the due date for a payment starts to approach. The communication for the same will be sent through emails, text messages, and even letters on a later stage. These will act as reminders for the non-payment of the instalments. The reminders will be to keep the borrower in the loop about the possible consequences that he or she might have to face in case of default. 

2) The lender will charge a penal interest 

The lender will also charge an additional interest over the usual applicable interest rate. This extra charge will be applicable for the months on which the payments have not been made. This extra interest, also known as the penal interest, is usually charged at the rate of 1% p.a. to 7% p.a. and is subject to differ from lender to lender. 

3) Effects on the credit score 

In case of default, the credit score of the borrower will take a hefty hit. The credit history of the borrower will also have a recorded default which will make it harder for the borrower to avail credit in the future. A low credit score will also mean that the borrower will not be eligible for a number of credit products offered by various lenders. 

4) The lender will auction the gold 

In case of a default, the lender will hold the rights to auction the gold against which the loan was availed. The gold acts as a collateral in these cases and thus, the lender will be able to sell the same to cover up for the losses caused due to the non-payment of the gold loan. In such cases, the lender will also get in touch with the borrower at least 2 weeks in advance and inform them about the upcoming auction. 

5) The lender might take legal action 

The lender will also be able to take legal actions against the defaulter in case the amount received through the gold auction is not sufficient to close the loan. If there is a shortfall, the lender can take legal actions against the borrower to cover up for the same. 

One should keep in mind, that there are no fixed rules which are applicable in case of gold loan defaults. The consequences may differ from borrower to borrower. 

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