When you opt for a loan against gold, you can borrow funds by pledging your gold jewellery as collateral. This type of borrowing is popular due to its accessibility, quick processing, and relatively lower interest rates compared to unsecured loans. Gold loans are offered by various financial institutions, including banks, Non-Banking Financial Companies (NBFCs).
Lenders evaluate the value of your gold items based on their weight and purity, offering a loan amount that can go up to 75% of the gold's value, known as the gold loan per gram rate The loan tenure can vary, and it is also important to consider the gold loan interest rate when determining the affordability of the loan.
Repaying a gold loan is a crucial aspect of the borrowing process. Failure to repay the loan can have certain consequences. Read to know what happens when you do not repay your gold loan.
Reminder and notice
Lenders will send reminders and provide a notice period when you miss a repayment. This allows you to rectify the situation and settle the outstanding amount. It is important to communicate with the lender during this period and discuss any difficulties you may be facing.
Penalty charges
Non-payment or delayed payment of your gold loan can result in penalty charges. These charges may include late payment fees, or other penalties as per the loan agreement.
Auctioning of gold
Continuous default on your gold loan payments without responding to reminders or notices may lead to legal proceedings. In such cases, the lender may auction the gold items you pledged as collateral to recover the outstanding loan amount.
Impact on credit score
Defaulting on a loan against gold, can negatively affect your credit score. Non-payment or delayed payments are reported to credit bureaus, which can lower your creditworthiness and make it challenging to access loans in the future.
To ensure responsible borrowing, evaluate your financial capability to repay the gold loan within the specified period. If you face difficulties in repayment, discuss the situation with the lender, and explore alternative repayment options.
If you are considering renewing your gold loan, it is important to review the terms and conditions. Some lenders offer the option to renew or extend the loan tenure, but it is crucial to understand any associated costs, such as renewal fees or changes in the gold loan interest rate.
A gold loan provides immediate access to funds by pledging gold as collateral. However, non-repayment can lead to penalties, auctioning of the gold, damage to your credit score, and potential legal consequences. It is crucial to fulfil the repayment obligations to maintain a healthy financial standing and preserve your valuable assets.
