What Happens If You Miss A Gold Loan Repayment?

While gold loans are a convenient and affordable option compared to unsecured credit, defaulting can result in emotional distress, financial strain, and long-term harm to your creditworthiness.

A gold loan is secured by your gold, typically valued at up to 75 per cent of its market price.

Source : Freepik

When it comes to credit, gold loans are among the most popular and accessible ways to raise funds. Whether it's for a medical emergency, your child’s education, or managing a short-term cash crunch, pledging your gold ornaments offers a quick financing solution.

Gold loans surged in popularity in 2024, registering a 56 per cent increase in demand. The Moneymood report dubbed it ‘the year of gold’, reflecting a shift in borrowing preferences. More borrowers opted for secured options like gold loans and home loans to manage their financial needs. 

But, while getting a gold loan is simple, do you know what happens if you miss your repayments? Let’s find out. 

Persistent Payment Reminders

As your repayment date nears, your lender will typically send you reminders via SMS or email. If you miss the repayment date, the follow-ups might escalate to letters or calls to alert you about the pending payment. 

Higher Penalties 

If you delay repayment, lenders may charge penal interest on top of the regular rate. Prolonged defaults can inflate your dues through additional charges like auction fees, storage charges, and legal costs which are often deducted from auction proceeds. If the gold’s value falls short, you’ll still be liable for the remaining balance.

Credit Score Impacted

Similar to other loans, gold loan defaults are reported to credit bureaus like CIBIL and Experian, lowering your credit score. This can hurt your chances of getting future loans or credit cards, and may limit your ability to negotiate better terms or higher limits.

Gold May Be Auctioned

A gold loan is secured by your gold, typically valued at up to 75 per cent of its market price. If you fail to repay it on time, the lender can auction the pledged gold to recover dues. While borrowers receive multiple reminders, failure to repay may result in the permanent loss of jewellery that is often of sentimental value.

Legal Action May Be Initiated

In rare cases, if auction proceeds don’t cover the outstanding dues, lenders may initiate legal action, subject to the loan agreement and local laws. 

Easy Steps To Avoid Loan Defaults

• Communicate: If you can’t repay your gold loan on time, don’t stay silent. Contact your lender. To ease the repayment burden, many lenders offer solutions like tenure extension, EMI conversion, or interest-only repayment. These options help you retain your gold and protect your credit score, but are usually extended only when you show intent to repay.
• Borrow responsibly: Gold loans are ideal for short-term needs. Unless they are backed by a clear repayment plan, they may not be as suited for long-term or recurring expenses. 

Before borrowing, evaluate your repayment capacity and budget for your EMIs. Once your loan is repaid, promptly collect your gold to avoid additional charges. While gold loans are a convenient and affordable option compared to unsecured credit, defaulting can result in emotional distress, financial strain, and long-term harm to your creditworthiness.

(The author is the CEO at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)