Gold loan default: Gold loan is one of the easiest and safe loan options in the Indian market. In this, customers can take loans immediately by pledging their gold jewelery or coins. However, an important condition is associated with this feature- payment on time. If the borrower does not repay the installment on time or does not settle the loan within a fixed period, it can have serious financial and legal consequences.
Let us know what happens when defaulted on gold loan, what kind of action the bank can take and what can be done to avoid default.
What is gold loan default?
When a borrower does not pay the EMI, interest or principal of the gold loan according to the fixed schedule, it is called a gold loan default. Even though your gold is present with the bank as a mortgage, the delay in payment affects the customer’s credit profile and financial situation.
What happens on a loan default?
In case of default on gold loan, the bank first adds late fees and penalty interest on the outstanding amount. This amount increases over time, which makes the loan repay and difficult. Also, this Default Credit Bureau is reported. Due to this, the credit score of the customer falls and it can be difficult to take any kind of loan or credit card in the future.
When is auction and legal action?
If the loan installment is not paid within 30 to 90 days, the bank can start the recovery process. Like this, the bank can take some special steps:
- Gold auction: The bank can sell the jewels pledged through public auctions for loan recovery.
- Ownership ended: After the auction, the customer loses his right to that gold. If the auction amount is less than the loan, the customer may have to pay the remaining amount.
- legal claim: If the value of the mortgaged gold is very low and the dues are high, then the bank can claim recovery through the court.
What will be the effect of loan default?
The impact of the gold loan default may remain for a long time. Even if the customer later repays the loan, there is a impression of delay in his credit history. It is usually recorded in your credit history for 7 years. This may cause problems in taking personal loans, home loans or credit cards in the future. In many cases, banks give loans to such customers at higher interest rates.
What are your legal rights?
In the event of a gold loan default, the bank may auction your mortgaged gold, but this process takes place under a fixed legal framework. The bank first sends notice to the customer and gives him an opportunity to pay. If the loan is still not repaid, a public auction is done.
The customer has the right to repay the arrears before the auction and withdraw his gold. On receiving more money from the auction, the additional amount is returned to the customer, but if the amount is low, it is the responsibility of the customer.
How to avoid gold loan default?
- Take the loan as much as it is practical.
- Make a budget ahead of time to repay EMI.
- Be cautious about dew dates.
- Choose the option of gold loan insurance for a sudden crisis.
What are the ways of solution?
If the economic conditions are tight after taking a gold loan, then it is right to talk to the bank first. You can contact the bank and request loan restructuring. In this, many banks offer facilities like partial payment or loan duration. An option may also be that the customer gets the loan transfer to another bank where the conditions are favorable.
Actually the gold loan default is not limited to losing jewelery just. This begins a process that can affect your financial future. Therefore, before taking a gold loan, take full decisions and contact the lender in time in case of any difficulty in payment. Also, keep some emergency funds, so that such a situation does not come.
Also read: How to Sell Gold: Want to sell gold lying in the house? Know when and how it will benefit more