A gold loan is a secured loan. You can take a loan by keeping gold goods and jewelry etc., this is called gold loan. Gold loans have very low interest rates as compared to personal loans. You can take a gold loan at an interest rate of 11–12% per annum, while personal loans are charged at 14–22% by banks. Farmers get gold loans at an interest rate of about 8%. You can take a gold loan even if you have a low CIBIL score. There is no need to provide proof of income for taking a gold loan. Gold loans have many advantages over personal loans. If people have gold, they usually prefer to take gold loan. But have you ever thought what would happen if you do not repay the gold loan? Therefore, information related to this is being given through this article.
What is gold loan?
Gold loans are sanctioned by banks and NBFCs to meet the immediate financial needs of the people. You can take a loan from a bank or NBFC by pledging gold jewelery and other goods and withdraw your gold from the bank by paying the amount borrowed and interest at the end of the loan term. Sometimes it is difficult to repay gold loan on time due to adverse and difficult circumstances. If you are unable to repay the gold loan on time, you may face the following situations –
Credit score is low
A credit score is a score of three, indicating your loan repayment. This lets the lender know how ready you are to repay the loan and repay the loan on time. Banks and NBFCs send your payment data to credit bureaus such as Trans Union Cibil, Equifax, Experian and Kriff High Mark. They prepare your credit report and provide a credit score. If you do not repay on time or refuse to give the loan, it affects your credit score and it reduces. If your credit score is low, the lenders do not offer you a new loan. If you manage the loan in any way even after a low credit score, its interest rates may be higher than the actual interest rates.
Penalty can be imposed
If you are unable to repay the gold loan on time, banks and other lenders may charge additional penalty in the form of penalty at current interest rates for taking longer than the stipulated time. This rate is higher than the normal interest rate of a gold loan. However, different banks charge extra interest on their own. Penalty interest rates can be around 1-7% per year.
Bank can take legal action
If you miss repayment of your loan once or twice, it could be due to some problem, but if you default for three consecutive months, then you may have problems. If you ignore the reminder of the lender, the bank can send you a legal notice and with the help of the law can recover your money.
Gold can be auctioned
When you take a gold loan, you have to mortgage the gold with the banks. If you fail to repay the gold loan, you can lose your gold jewelery, gold coins etc. If you are unable to repay the gold loan even by the last repayment date, the bank can recover your dues by auctioning your gold jewelery. There is nothing you can do in this situation, because the lender has no choice but to sell gold and recover its outstanding balance.
How to stop loan repair default?
If you are unable to repay the gold loan on time, in such circumstances you can do the following –
- Inform the lender on this issue and he can suggest you ways to repay the gold loan EMI on time.
- You can request the lender to extend the duration of the gold loan.
The duration of a gold loan is usually 12 months. You can choose to repay the gold loan through monthly EMI or interest. It does not matter which option you choose to repay the loan. If you are unable to repay the loan in 12 months, banks can offer 36 months. If you are not able to repay the principal, you can renew the gold loan by paying the processing fee and the difference in the price of gold.
