As part of the loan agreement, if you fail to repay on time the lender can send repeated reminders. These are designed to keep you apprised of the payment amount, due date, etc. and will be sent via phone calls, e-mails and mail. A failure to repay even a single instalment will prompt creditors to take action as indicated in your contract with them.
Impose by Penal Interest
While you are on a gold loan, if you miss a monthly payment for whatever reason, the lender may impose a penal interest on top of the regular monthly draw. This could range from 1% to 7% per annum. The gold loan interest will be charged cumulatively till the end of the repayment period (including starting date).
In case of a non-performing asset (gold pledged as collateral), the bank or the financial institution will ultimately auction off the gold since it has not been repaid. The auction price is a fair price sale with no making charges included. You will lose all previous gemstone fitting charges as well as any interest paid in addition to the gold amount. If any recovery is made more than this gold amount, it constitutes a considerable loss to borrower.
Affects Credit Score
One simple rule: never miss a repayment. In addition to adversely affecting your credit score, failing to make payments can trigger legal action from the lender. While most gold loan lenders are willing to work with you if you’re having difficulty making monthly payments, they will always take disciplinary action against you if necessary.
What is a gold loan?
A gold loan can help you to meet any financial emergency, such as purchasing a new house or paying the cost of your daughter’s wedding. With a gold loan, you can get instant cash based on the value of gold that is pledged as collateral. This helps you to secure loans that you may not otherwise be able to obtain from banks or other financial institutions.
You can enhance your lifestyle with the use of gold. It is the most precious metal, and many banks and financial institutions offer loans against the value of your gold jewellery. Banks will evaluate your jewellery for purity and loan repayments are easy to book, so you can use these funds on anything you want!
If you have gold loans and you die, your family members will be responsible for repaying the loan. However, if you are insured, the remaining amount will pay on your behalf by your insurance provider. Every loan nowadays comes with insurance. If you do not have insurance and your family members cannot pay within the agreed-upon time frame, bank employees would take your gold possessions to auction.
You can borrow a loan from the bank and use your gold as collateral. But the bank will recover the amount by repossessing your gold when you die. The only solution is to get a life insurance so that your family doesn’t have to pay back any loan amount after you die.
What happens if you don’t pay off your debt?
Gold loans are straightforward to obtain and for convenience, banks and financial institutions provide several repayment options. Gold loans can be used for any purpose but it is necessary to be careful when borrowing money. The consequences of defaulting on a gold loan repayment can be serious so it is important to understand exactly what the lender’s rights are in such an instance and what measures they can take if you fall behind with repayments.