Lenders of gold loans are regulated entities, and they issue a written notice of default prior to commencing legal proceedings against a borrower who has failed to meet their obligations. This notification is not aimed at finding the borrower guilty or depriving them of their rights; rather, it grants a specific period during which the overdue amount can be settled.
Gold loans have remained a prevalent method of borrowing funds within society for centuries, with lenders offering a range of benefits. These include favorable interest rates, simplified application processes, reduced documentation requirements, quick access to funds, and a variety of repayment alternatives. All of these factors, provided by formal financial institutions, have contributed to establishing gold loans as an attractive credit product.
Gold loans feature comparatively shorter repayment periods compared to other types of loans. Generally, for long-term loans repaid through EMIs or interest payments with the principal settled at the tenure's conclusion, the maximum repayment duration is 24 months. In the case of short-term loans repaid in a lump sum, the repayment tenure is usually six months.
A gold loan is a secured form of borrowing that comes with lenient terms, making it accessible even to individuals with a limited credit score and history. Nevertheless, there are instances where borrowers might miss their gold loan repayments. It's important to recognize that failing to meet these repayments can lead to various repercussions, which can differ from situation to situation. Moreover, the actions taken by lenders against borrowers who default can also vary. Having said that, there exist several measures that borrowers can adopt to prevent default or to rectify the situation if they find themselves on that path.
Protect the pledged gold items from being put up for auction
When the borrower fails to completely repay the gold loan within the specified timeframe, and despite receiving multiple reminders, the lender possesses the authority to publicly auction off the gold items to recuperate the losses. The lending organization informs the borrower about the auction of the pledged gold two weeks in advance. To prevent the auction process, borrowers should promptly acknowledge the notice. In certain extraordinary situations, the lender might consider accepting a partial payment as outlined in the notice. Additionally, borrowers can engage in discussions about extending the repayment timeline or exploring the option of making a partial payment to effectively manage their repayment responsibilities.
Understand and evaluate the available payment choices
In situations where borrowers are unable to make their payments on time, lenders might apply a penalty interest rate. This rate is calculated based on the outstanding amount and is effective from the due date. Typically ranging from 3 percent p.a. to 12 percent p.a., the penal interest rate can vary among different lenders. Gold loan providers allow borrowers to select their preferred repayment method, accommodating their convenience. By carefully considering the advantages and disadvantages and forecasting future financial prospects, borrowers can make an informed decision about the most suitable gold loan repayment option for their individual requirements.
Diverse avenues exist for repaying the principal and interest sums. One option involves the borrower remitting both principal and interest on a monthly basis, which is particularly advantageous for individuals with steady monthly incomes. Alternatively, the borrower can opt to make regular interest payments while settling the principal amount at the conclusion of the tenure. This choice absolves the borrower from the ongoing responsibility of repaying the principal throughout the loan period.
Moreover, lenders extend the possibility of partial repayment, enabling borrowers to make intermittent payments of both interest and principal amounts as per their convenience during the loan term. Another avenue is the bullet repayment scheme, where the borrower settles both interest and principal in entirety at the loan's conclusion. Although the interest accrues monthly, it only becomes payable at the end of the gold loan tenure. This setup alleviates the borrower from the need to adhere to an EMI (equated monthly instalment) timetable or to make incremental payments throughout the tenure.
Prevent the need for frequent and repetitive reminders
Keep in mind that lenders are regulated entities and, prior to commencing legal actions against a borrower who has defaulted, they provide an official notice of default. The intention behind this notice is not to label borrowers as guilty or deprive them of their rights; instead, it grants a designated period within which the outstanding payments can be settled. In the event that borrowers miss their repayment deadlines or fail to fulfill their gold loan obligations, lenders are expected to maintain ongoing communication through various channels such as emails, text messages, calls, and even formal letters. These reminders are dispatched to ensure that borrowers remain informed about potential contingencies. To avoid such circumstances, borrowers should thoroughly evaluate their repayment capacity and engage in discussions with the lender to potentially restructure or adapt their repayment plan.
Credit Score Ramifications
While the approval of a gold loan isn't directly tied to one's credit score, it's essential to recognize that non-repayment can indeed influence it. Typically, Indian gold loan providers notify the credit bureau when there's a failure in repayment. Subsequently, this information is relayed to all non-banking financial companies (NBFCs) and banks. As a result, the individual's credit score is impacted, thereby diminishing the prospects of securing loans in the future. Even if a loan is eventually approved, it's likely to come with a higher interest rate.
