What happens if you default on a gold loan? Consequences explained
A gold loan is one of the simplest secured loan alternatives in India that allows borrowers to use their gold coins or jewellery as collateral to meet an urgent expense. However, if the debt is not serviced it may harm you greatly. Let’s find out in detail what happens if you do not repay a gold loan on time and why it matters.
What is a gold loan default?
When a borrower does not clear their loan as per the scheduled calendar i.e. fails to pay their EMIs, fails to pay the interest, or fails to pay the total principal by the end of the term, it is known as a gold loan default. Gold is a security for the gold loan, but non-payment can lead to adverse financial and legal impacts.
Immediate consequences of defaults
- Charges: Penalty charges for default are tagged on to the outstanding balance. Interest accrues over time, which makes it all the more difficult to make repayment.
- Effect on credit score: Your credit rating will take a penalty for any late payment that gets raised with credit rating agencies.
Legal repercussions and auction proceedings
If after a grace period, usually 30 to 90 days of default, lenders may begin collection proceedings:
Impact on future borrowing
Defaulting on a gold loan impacts the view of banks and NBFCs negatively on you; even if you pay back your overdue gold loan you may have a poor repayment history which can have repercussions in the future when trying to apply for credit cards, personal loans, or home loans and it may also result in elevated interest rates on loans.
Is there a way to recover from default?
So, if you are struggling financially, consider taking the steps below before it’s too late:
In conclusion, defaulting on a gold loan does not only lead to the loss of your gold. That event sets in motion a chain of legal and financial events, which may limit future borrowing options. Always borrow responsibly, read the loan agreement, keep in communication with your lender in case challenges arise in repayment.
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