What happens if gold loan is not paid

Last Updated: 15 Oct 2024

Numerous lenders in India provide loans for gold. A gold loan is a type of credit where you can offer your gold jewelry as collateral in exchange for a loan. Due to the fact that gold loans are secured, short-term loans, the interest rates are lower than those for personal loans. Gold is regarded as a crucial investment and loan instrument all over India. Banks offer gold as security for gold loans.

But if you take out a gold loan and then fail to pay off your bills on time, you risk having to give up your gold forever. The following is a list of things to consider.

What is the maximum tenure for gold loan?

Compared to most other loans, Gold Loans have considerably shorter repayment terms. The typical maximum payback period for a gold loan is six months for short-term loans repaid in full and 24 months for long-term loans serviced in EMIs.

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Things to consider if you default on your gold loan

Be ready for the following if you default on your gold loan:

• Repeated reminders:

  When the due date for payment is getting close, the lender of your gold loan will contact you. Later on, the communication for the same will be sent via emails, texts, and even letters. These will serve as notifications to remind people to pay their installments. The purpose of the reminders is to keep the borrower informed about any potential repercussions of defaulting on the loan.

• Negative impact on CIBIL score:

  In the event of a default, the borrower’s credit score will suffer significantly. Additionally, a default will be noted on the borrower’s credit history, making it more difficult for the borrower to obtain credit in the future. The borrower will also not be qualified for a number of credit products offered by different lenders if they have a poor credit score.

• Lender will charge additional interest:

  The lender will also apply a surcharge to the standard applicable interest rate. This additional fee will be charged for the months in which payments were not made. This additional interest, sometimes known as penal interest, is often assessed at a rate ranging from 1% per annum to 7% per annum, however, this might vary from lender to lender.

• Gold will be auctioned:

  If there is a default, the lender will have the right to sell the gold pledged as collateral for the loan. In these situations, the gold serves as collateral, and the lender will be able to sell it to recoup any losses incurred as a result of the gold loan’s default. In these situations, the lender will also contact the borrower at least two weeks beforehand to let them know about the impending auction.

• Legal action:

  In the event that the proceeds from the gold auction are insufficient to pay off the loan, the lender will also have the option of filing a lawsuit against the defaulter. If there is a shortfall, the lender may file a lawsuit to recover the difference from the borrower.

What happens to the loan if the borrower dies?

If you don’t pay back the gold debt when you’re dead, your heirs will be held accountable. However, if you have insurance, the insurance company will pay the remaining loan balance on your behalf. These days, insurance is included with every loan. If your family cannot pay the amount within the predetermined time frame and you don’t have insurance. Your gold belongings would be auctioned off by bank staff.

Your gold will be melted down by the bank to pay back the loan. Generally speaking, it makes sense to purchase insurance that will take care of all of your debt repayment obligations after you pass away, relieving your family of that burden.

Sapna aapka. Gold Loan Humara

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