Historically, gold has always been a reliable asset since it is often in demand, especially during economic uncertainty. Due to this, it is a common practice for many to resort to gold loans during a financial crisis. Borrowing on these loans is quite simple since the gold you possess is used as collateral. However, like all other products in the financial industry, gold loans come with a few important risks that should be understood, particularly in the event of default.
In the case that you do not repay your gold loan, the first thing that most people should understand is the impact this will have. Gold loans can definitely help in getting quick finance but when there is no repayment, then there are a number of very serious implications including loss of the gold asset, fines, and court proceedings.
Impact of Not Repaying Your Gold Loan-
- Getting your Payment Due Several Times: Most of the gold dealers will send you several promises via different ways such as emails, phone messages or even letters. These reminders inform you and tell you the measures in place that may follow in case the issue remains unsolved.
- Charges On Payment Fees: Your lender may charge you for the penalty interest. This should be considered in the event that a payment deadline is missed and there may be an additional interest on the remaining unpaid loan.
- Consequences on Your Credit Rating: Not paying dues has the potential to wreck one’s credit score. Money lenders inform credit bureaus about the amount of dues which were not received, and this could make it difficult to get credit in the future, or result in higher interest rates on loans.
- Auctioning of Your Gold: Auctioning of Gold In the event that you default on your loan, the lender is permitted to sell the gold that you have deposited with him as collateral. They will inform you in advance before this happens. Once the auction has been held, it is too late: your gold is gone – and with it, your opportunity to get it back.
- Legal Actions: Legal Action In situations where the gold sale proceeds are insufficient to meet the debt repayment, the lender will commence legal proceedings against the borrower. This may involve a legal suit, judgment in court, and other additional expenses that may aggravate your economic position.
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How to Avoid Defaulting on Your Gold Loan
- Stay in Touch with Your Lender – Make sure you communicate. Do not wait until the last minute to inform your lender if there’s going to be a delay in payment. A loan restructuring option may be open, allowing them to extend the repayment period or adjust beneficial terms.
- Consider Loan Restructuring – Discuss the modification of terms with your lender if the changes in your economic condition warrant such a move. Depending on the situation, you could secure a longer tenure, lower EMI, or a payment holiday, among other options that some lenders offer.
It is important to check and understand the right repayment plan offered by different lenders. Some of the plans include the following: as many lenders offer different repayment options, it’s important to choose a repayment plan that fits your earning capability.
Although gold loans can serve as a good way to fulfil one’s monetary obligations, some degree of care needs to be taken while borrowing such loans, ensure that you are certain about your capability to re-lend the money before you take the loan. Borrowers can remain free from the adverse effects of non-repayment and stay within healthy levels of finances when they maintain communication with the lender, select an appropriate repayment plan and take the right course of action. Money borrowed today would mean wealth being protected for tomorrow because one would be able to sleep peacefully.
Views expressed by Sumit Sharma, Founder- Radian Finserv
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