Gold loans are prevalent in India these days. This loan is suitable for getting money on short notice. It is a type of secured loan where the gold in the form of jewelry and coins are the collateral security. Borrowers have to repay the whole amount due with interest at the end of the tenure, which is mostly of 3 years.
Sometimes due to certain financial situations, one is unable to pay back the gold loan on time, and this weakens the bond between the borrower and the lender. There is involvement of other problems associated with it. Many of them are not known to one.
Moreover, the consequences of missing your gold loan vary from case to case. Even the actions taken by the lender varies from one to another. Although it is recommended never to miss the repayment, however, if due to unavoidable situations you have to, you should be aware of the consequences.
Here are a few problems that can stand in front of you if you are unable to pay back your gold loan.
Adverse effect on the credit score – A 3-digit score reflecting how you manage your credit, is termed as the credit score. This credit involves loans and credit cards. The score is calculated by the credit bureaus that mark a person’s score based on information provided by your concerned financial institution.
And your bank or financial institution prepares this information based on payment and delay for your credit dues. Default in the payment of the gold loan will badly reflect on your credit score and credit report. The credit report is requested to be shown every time to the lenders when you apply for a loan. A low credit score will make you an NPA (non-performing asset).
This will prevent you from getting better credit options and sometimes will show you the door of rejection. The credit which you will get due to your low credit score will lead to high payments for interest charged.
Loan repayment reminders – when you miss a single installment payment, you are poured with a huge number of reminders. They don’t want to give you a chance to miss any payment or say that you didn’t receive any reminder. The reminders are then not only just through phone calls, but they also try every method to reach you and remind you of your late payment. This becomes a routine and frustrating task.
Penal interest charged – Some of the lenders charge penal interest for a late or missed payment. These charges are way too over and above the nominal interest rate. They come out to be very expensive for the borrower. The interest charge usually ranges from 1% to 7% per annum, varying from lender to lender.
Legal actions may be taken – A gold loan is paid back in many ways. But the most favored is the payment in installments. Lenders usually allow 2 to 3 slip-ups, but once this limit is crossed, you are declared an NPA. This restricts you to get further loans in the future.
Similarly, if the lender’s reminders are ignored frequently, the lender can take legal actions against you. The notice of paying your debt obligations will reach your registered address. It can hamper both your creditworthiness as well as your social status.
- Collateral gets auctioned – Your gold articles pledged at the time of taking the loan gets into the risk of getting auctioned. Non-payment of debt obligations after constant reminders from the lender and the court will put your gold jewelry and coins in danger.
Lenders have no other option than to liquidize your gold through auction to get back their money. And the worst part is that you can’t even argue for not doing so as then the lender has the legal possession of your gold. The lender can do anything he wishes to do with it, and you can’t even interfere.
Although these are some of the extreme options for which lenders go for. You can always talk to the lender and can find a solution to it, which is suitable for both you and the lender. The gold loan tenure can also be increased to reduce your EMIs amount. You can also consolidate your debt with other loans, which have a low-interest rate than your EMIs.
Now you know the problems associated with missing the gold payment, and therefore, one must always try to pay back the gold loan on time. This will help you with your credit score to avail of future required loans.