What Happens If You Can't Repay Your Gold Loan on Time: An Awareness Guide

Summary: If you fail to repay your gold loan on time, you may face penalties, a drop in your credit score, and risk losing your pledged gold via auction. Persistent default can even lead to legal action. To avoid these consequences, communicate early with your lender, explore repayment options like interest-only or bullet payments, use savings if possible, or seek expert financial advice. Acting quickly can help protect both your credit and your gold.

A gold loan is a way to borrow money to meet your immediate financial needs. The simple eligibility criteria and fast approval process have resulted in its immense popularity in recent years. Moreover, the presence of collateral provides confidence to the lender.

Once the loan amount has been repaid, the borrower can take back the gold pledged.

However, in some cases, people find it difficult to pay back the money on time. In such cases, they are met with consequences ranging from penalty charges to the auctioning of jewellery.

Gold Loan Non-Repayment: What Happens If You Don’t Pay Back A Loan?

1. Penalty:

   Missing gold loan payments can be stressful and costly. If you are late in servicing the interest due, you will face penal charges of up to 2% per year on top of your original loan rate. These charges kick in after the normal loan period ends, which is usually between 3 months to a year. The penal charges are applicable to the entire outstanding amount until actual payment.

2. Auctioning of Gold Collaterals:

   One of the biggest consequences of not repaying your loan on time is losing the gold assets you used as collateral for taking a gold loan.

   If you are unable to repay your loan, lenders may work with you to find a solution. However, if there is no response after sufficient notice and periodic SMS reminders, steps will be taken to recover the losses. This involves selling your pledged gold through an auction after intimation.

   The proceeds from the auction will first be used to cover your outstanding loan amount, interest, and penalties. If there is any excess, it will be adjusted against any other debts you may owe. Any remaining surplus will be refunded to you within 30 days of the auction.

   But if the auction amount still falls short, the lender may take further action (like legal proceedings) to recover the remaining amount.

3. Legal Actions:

   In severe cases of non-repayment, legal actions can also be taken against the borrower. While this happens in the most unfortunate and rarest conditions, the risk of it looms in the picture. Legal actions will only dampen your reputation and credit history and cost you more money.

4. Impact on Your Credit Score:

   The CIBIL score is not very important when opting for a gold loan. However, in case of default, your credit history will show the records of your delayed or non-repayment of your loan. This can lower your CIBIL score.

5 Solutions If You Can’t Repay or Manage Repayments

• Communication is Key:

  If you anticipate a delay in your loan repayment, it is crucial to communicate this to your lender promptly. This proactive step can help you and the lender find a solution that avoids any negative repercussions.

  Our team at Manappuram Finance Ltd. is here to work with you, whether it is adjusting the terms or finding a more flexible repayment plan.

Our team at Manappuram Finance Ltd. is here to work with you, whether it is adjusting the terms or finding a more flexible repayment plan.

• Interest Servicing:

  You can opt to pay the interest monthly and repay the principal amount when the loan matures. This way, you will be able to break down your gold loan repayments into manageable chunks and avoid a big financial hit all at once.

• Single Repayment/Bullet Repayment:

  Another convenient repayment option for gold loans is single repayment. This alternative lets you pay off your gold loan with one easy instalment on the maturity date. Thanks to this, you can enjoy the freedom of not worrying about monthly payments.

• Use Savings:

  If you are unable to repay your debt through your salary, consider using your savings. This will help you pay off your outstanding loan amount and also prevent the risk of losing your gold or incurring heavy penalty charges.

• Take Advice from Experts:

  Talking to a financial advisor can help you understand the financial options that are available to you to manage your debt. They can also help you find solutions to use your money wisely.

Conclusion 

Not making your gold loan repayment on time can lead to extra charges, lower your credit score, loss of your gold, legal issues, and other financial problems.

It's crucial to act quickly and talk to your lender if you are having trouble paying.

By exploring different solutions and seeking advice from financial experts, you can find a way to manage your loan and keep your valuable gold safe.