Most top banks and NBFCs offer loans against gold in Bangalore, Chennai, and other Indian cities. Availing of a gold loan allows you to pledge the valuable yellow metal and secure instant funding to meet your urgent needs. Gold loans come with a set interest rate and regular (or periodic) payment obligations like any other loan product.
While you can pick a preferred repayment method and tenure to suit your needs, making timely payments to clear your debt is essential. However, sometimes unexpected emergencies can interfere with your payment schedule, resulting in missed payment deadlines.
Defaulting on your gold loan can have dire consequences, leading to the loss of the precious asset and a lowered credit score. If you’re applying for a loan against gold in Chennai, Mumbai, or any other city, you should be aware of these defaulting consequences.
Things That Will Happen If You Default on a Gold Loan
Failing to clear your loan against gold in Bangalore and other Indian cities initiates the following chain of events:
If you’ve missed several consecutive payments, your gold loan lender will send you payment reminders. Lenders can send these payment reminders via calls, texts, or emails.
Penal Interest Charges
Missing payments will also attract a penal charge. Lenders impose this penal interest over and above the interest rate applicable on the loan. This penal interest usually ranges from 1%-7% and is charged on the outstanding payment due from the due date.
Even after multiple reminders, if you fail to clear your dues for three consecutive months, your lender will resort to legal action. You will then receive a legal default notice from the lender outlining your dues and expected repayment window.
When you take a loan against gold in Bangalore, Chennai, or any other city, your lender uses the gold you pledge as collateral. So, if you cannot repay your dues, your lender reserves the right to recoup the amount by auctioning off this gold. However, lenders are legally bound to send you an auction intimation letter 21 days before the actual auction date.
Legal Action for Margin Payment
If gold prices decline sharply, the gold value recovered from the auction can fall short of the loaned amount. In such instances, the lender can pursue legal action against you to recover this deficit.
Decline in Your Credit Score
While you can secure a gold loan even without a credit score, missing payments or defaulting on the loan negatively impacts your credit score. Since your credit score summarises your creditworthiness, defaulting on the loan makes you a risky borrower. As a result, securing loans in the future will become difficult, and you might also have to shoulder higher interest rates on future loans.
How to Prevent Defaulting on a Gold Loan?
It’s evident that defaulting on your gold loan can bring severe consequences. However, you can take steps to reduce the chances of defaulting on the loan amount. Here’s what you can do:
Use an EMI Calculator
You can use a gold loan EMI calculator to ensure that you borrow within your limits and that your existing financial obligations don’t compromise EMI payments. Running multiple loan amounts, interest rates, and tenure combinations through the calculator helps find the right balance. This way, your EMI burden remains within a manageable threshold, making timely payments easy.
Choose the Right Repayment Method
Opting for loans against gold in Bangalore, Chennai, Mumbai, and other Indian cities brings you the benefit of flexible payment options. You can choose a repayment method best suited to your needs to minimise default possibilities. Here are 4 ways you can repay your gold loan:
- Bullet Payment – With this repayment method, you can clear your principal and interest dues all at once at the end of the loan tenure. So, you can save up during the loan tenure to close the loan on the final due date without worrying about missing payments in between.
- Partial Payment– You can pay parts of your principal and interest as and when you have funds available. In other words, you don’t need to stick to a strict EMI schedule. Repaying the borrowed principal sum first also helps save on the interest component which is calculated on your outstanding dues.
- Advance Interest Payment- Alternatively, you can pay off the interest due according to the EMI schedule. The principal amount can be repaid at the end of the loan’s tenure. Doing so will help you repay the interest on time without worrying about the principal amount during the loan tenure.
- EMI Payment – If you’re a salaried employee with a regular monthly income, the EMI payment option can help you manage your gold loan effectively. Like all standard EMI plans, your gold loan EMIs will also comprise a principal and interest component. These EMIs must be cleared regularly as per your repayment schedule.
Opt for a Balance Transfer
Before opting for a loan against gold in Chennai, Mumbai, or any other city, you should compare the applicable interest rates and terms diligently. Comparing lenders will help you select the best gold loan offer to meet your needs. However, if you find a lender offering lower interest rates, you can transfer your balance from your current lender. Doing so will help you save on interest payments, reducing the possibility of default.
Talk to Your Lender and Restructure the Loan
If you’re facing a cash crunch and can’t make clear the EMI dues, contact your lender immediately. Similarly, even if you’ve missed a few payments, talk to the lender to explain your financial situation. Your lender might be able to rework your repayment schedule, giving you more time to repay the loan. However, this decision depends solely on the discretion of your lender.
Loans against gold in Bangalore and other Indian cities can give you access to immediate credit, but the consequences of defaulting on the same can be monumental. While we’ve outlined all the repercussions of missing payments, actions taken by lenders to recoup the amount can vary.
Regardless of the lender’s actions, failing to clear dues makes the possibility of losing your valued gold articles quite strong. Using the preventive measures mentioned above can help you secure the funds you need for immediate use as well as protect your valued asset from repossession.