Lending institutions (Banks and NBFcs) provide borrowers with gold loans as a way to acquire short-term financing while they save up for larger purchases or invest in a business. Borrowers must make regular payments (monthly, quarterly, or semiannually) or make one large payment (principal plus interest) at the end of the tenor. On the other hand, there are situations when unforeseen events prevent a borrower from making timely loan payments. Long-term loan nonpayment can have consequences that the borrower may not be aware of but will learn about after reading this page. Interest at a punitive rate will be assessed by the company beginning on the loan’s due date.
However, this does not apply to loans made to farmers up to a particular amount. In the event of persistent lateness, the organization will contact the borrower via SMS reminders, phone calls, emails, and letters to inform them of the loan’s outstanding balance. If this happens, the borrower can visit the branch office from which he borrowed money and ask to have his repayment plan adjusted. If the loan is not repaid in full by the due date, the corporation may sell or otherwise dispose of the gold at a public auction at the borrower’s risk and expense. But two weeks before auctioning off the borrower’s gold, the lending institution will notify them of the same.
Is There Any Consequence for Defaulting on a Gold Loan?
As is common knowledge, a loan amount is the sum of money lent to a borrower by a moneylender, usually against interest and collateral. A gold loan is a type of secured loan that you can get by putting up your jewelry or other gold items as collateral. The banks will approve your loan amount based on the value of your gold.
Banks’ Legal Actions
If the borrower fails to respond after the bank has sent letters and reminders, the bank may take legal action, in which case the borrower will be served with a legal notice. If you want to avoid damaging your credit history, CIBIL score, and reputation, you should give this some serious thought before applying for a loan, making your payments on time, or at the very least replying to any alerts you may receive from a financial institution. If you are having trouble making your monthly EMI payments, you could talk to your bank about extending the length of your loan.
In the event of a borrower’s failure to make required Gold Loan payments, the aforementioned outcomes may occur
In the event that you have not yet repaid your gold loan, the first thing that banks (and NBFCs) will do is send you letters and reminders. If you, the borrower, miss two payments, the bank will treat them as late payments; if you try to do the same with the third payment, the bank will send you a notice or reminder (under the SARFAESI Act of 2002). If your payments are late for more than 90 days, the loan will be classified as an NPA (Non-Performing Asset), and from that point on, you will have no recourse as a borrower.
Gold, an Asset/Collateral:
Here we have the last step taken by financial institutions. In the event that the debtor does not respond to the following measures, the lending institution will exercise its sixth and last recourse, which grants the money lender full ownership of the debtor’s gold. Commonly, gold is pledged as collateral, with the owner regaining possession if and only if the loan is repaid in whole and on time. If repayment is delayed, the bank can sell the gold to recoup its losses.
