What Happens When You Don’t Pay Your Gold Loan

In India, borrowers who are unable to repay a gold loan usually receive multiple reminders from the lenders, which escalates to potential penalties. They may auction the gold to recover losses if the loan remains unpaid. At least, that’s the gist. In practice, an elaborate chain reaction is set off the minute you are late on a gold loan repayment. So, what happens if a gold loan is not paid, and what can you do to avoid losing it forever?

You may face the following consequences if you fail to pay back a gold loan:

• Negative Impact on CIBIL Score: 

Delayed payment for gold loan, interest accrual, and legal actions cause your CIBIL score to drop sharply. This influences the borrower's creditworthiness, affects the ability to secure loans from other institutions, and impacts personal financial credibility. 

• Difficulty in Future Loan Approval: 

Defaulting on a gold loan can hinder your ability to secure loans in the future. Other financial institutions will look at your credit report and could be reluctant to lend to someone with a history of non-payment.

• Asset Valuation Risks: 

If your gold is auctioned off, the auction value of your gold assets might be lower than the outstanding loan amount. In such cases, you could still be liable for the difference, leading to financial loss. 

• Strained Relationships with Lender: 

Persistently falling behind on loan payments can sour the rapport you share with your lender. This may affect your chances of securing flexible loan terms or receiving urgent financial assistance in the future. 

• Impact on Co-Borrowers or Guarantors: 

If you had co-borrowers or guarantors for the gold loan, they might also have to bear the brunt of your loan default. They could be liable to legal consequences and their credit score would also take a hit. 

The following steps are taken by your lender if you default on your gold loan:

• Repeated Reminders from Lenders: 

When there is delayed payment for your gold loan, financial institutions take the first step with polite reminders. They may send notifications via mail, messages, or calls, urging you to clear the outstanding amount at the earliest. Respond to these communications promptly to discuss your situation and explore possible solutions. 

• Lender Charge Additional Interest: 

If the loan remains unpaid after a certain period, the lender imposes additional interest and penalties. This increases your overall debt, making repayment more challenging. It is important to address the issue early on to avoid further financial strain. 

• Legal Action Taken: 

When all other attempts fail, lenders may resort to legal action, initiating formal legal proceedings to recover the outstanding amount. The borrower will have to pay legal fees and other associated costs beyond the loan amount and interest accumulated. 

• Gold Will Be Auctioned: 

In case of prolonged non-payment, lenders have the authority to auction the gold provided as collateral. This means you lose your pledged gold assets permanently. Borrowers should be aware of the terms and conditions regarding auction procedures, as outlined in the loan agreement. 

Many lenders are willing to work with borrowers to find reasonable solutions and avoid these severe consequences. Here’s what you should do – 

• Openly Discuss with Lenders: 

Discuss your challenges transparently to explore potential solutions, such as restructuring the loan or temporarily adjusting the repayment schedule. Besides lowering the risks of legal action or gold auction, this proactive approach shows lenders that you are genuinely trying to cooperate. 

• Prearrange for Loan EMIs: 

Set up automatic payments to regularise your EMIs. This ensures timely repayments and minimizes the risk of forgetting or missing instalments. Automating payments adds a layer of financial discipline, prevents any negative impacts on credit scores, and avoids straining borrower-lender relationships. 

• Negotiate Loan Settlement: 

If you are expecting delayed payments for gold loan, consider negotiating a loan settlement with the lender. Discussing a mutually agreeable settlement amount can help avoid the auction of your gold assets. If you have a cordial relationship with your lender, there may be room for a compromise. 

You can choose from one of the following repayment options for your gold loan 

• Monthly Repayments in EMIs:

Borrowers make regular monthly payments, including both principal and gold loan interest, spread over the loan tenure. This structured approach ensures gradual repayment. 

• Partial Principal Repayment with Flexible Interest Payment: 

Borrowers can repay a portion of the principal amount with flexibility in interest payments. This option offers a balance between reducing the loan amount and managing interest costs.

• Repayment Through Interest-Only EMIs: 

Borrowers pay only the interest component of the loan as EMIs during the loan tenure. The principal amount is repaid in bulk at the end of the loan term, providing time to accumulate the lump sum. 

• Bullet Repayments: 

Borrowers settle the entire loan, including both the principal and interest, in a single payment at the end of the loan tenure. This option provides higher flexibility but requires careful financial planning for the final payment.

To prevent defaulting, it's crucial to explore various gold loan options from the get-go to secure lower interest rates and flexible repayment terms. This proactive approach reduces the risk of payment challenges and enables a more manageable loan repayment experience. Wondering where to start? Choose a Gold Loan from Bajaj Markets and get interest rates from as low as 8.88% p.a. Enjoy benefits like part-release facilities, complimentary insurance, and doorstep services for your gold now!