What Happens to Your Gold If You Miss Multiple Loan Repayments?

A gold loan is one of the fastest and most accessible ways to borrow funds during times of financial urgency and when immediate access to money is needed. Be it for medical emergencies, household expenses or personal needs, pledging gold gives you instant funds without having to sell it off. But just like any other loan, gold loans also have their own repayment obligations.

So what happens when you can’t repay on time or miss multiple payments altogether? Let’s explore the implications of the perks and consequences of a gold loan.

How Gold Loans Work?

When you take a gold loan, you are essentially using your jewellery or gold coins as collateral. The lender assesses your gold’s purity and weight and determines how much loan you can get from it. This is calculated based on the loan-to-value(LTV) ratio, which is the percentage of the gold value that you can borrow.

Once approved, you receive the amount along with an agreement in which you are expected to repay it over a set period, along with the loan interest rate.

The repayment can be done in different ways:

• Monthly EMIs: Monthly payments of interest and principal.
• Bullet Repayment: Monthly payment of interest with principal due at the end.
• Lum sum: Both interest and principal are paid in one go at the end of the loan term.

What Happens When You Miss Repayments?

Missing a payment may seem manageable initially, but repeated defaults can cause serious consequences. Here’s how the process typically unfolds:

• Notices and Penalties

If an EMI or scheduled payment is missed, there is no immediate action. Instead, the lenders usually send reminders via SMS, calls and emails. This may also lead them to charge a late payment fee or penalty.

• Impact on Credit Score

Even though your gold loan is secured, the repeated non-payment can negatively affect your credit score. So, this can limit your ability to get loans in the long run, and you can also be subject to higher interest rates.

• Auction of the Gold

If payments are not resumed even after multiple reminders, the lender has the legal right to auction your gold assets. This typically doesn’t happen overnight. The lenders wait for a period of 30-90 days, and then they initiate the auction proceedings. 

You will receive a final notice before the auction, giving you a last opportunity to settle the amount and reclaim your gold.

• Shortfall Recovery

If the gold is auctioned but doesn’t fetch enough to cover the outstanding dues, including interest and fees, you may still have to pay the shortfall. 

Can You Avoid Losing Your Gold?

Yes, and it starts with proactive communication and responsible borrowing:

• Extend the loan or restructure: If you are struggling with payments, many lenders may offer a reschedule option. You will be given two options which are either to extend your loan tenure or switch the repayment method.
• Top-Up Loan Option: If your gold value has increased or if you have paid a part of the loan, you may be eligible for a top-up loan. This option can help you manage the current dues more comfortably.
• Prepayment or Part-Payment: If you receive a tax refund or bonus, consider part payment or close the loan early. Some lenders let you repay gold loans early without any extra charges.

Conclusion

Gold loan offers a quick and convenient way to access funds, defaulting on repayments can lead to the loss of a valuable and often sentimental asset. The lender has the right to auction your gold after a sustained period of non-payment, but there are often warning signs and remedial options along the way.

Staying informed, choosing the right gold loan interest rates, budgeting repayments wisely, and seeking help early can go a long way in safeguarding your gold while enjoying the benefits of short-term financing.