Gold loan is a secured loan that lending institutions (Banks and NBFcs) extend to borrowers against their gold articles with an aim to help them meet their financial requirements. Like any other loan, the borrower is required to pay EMI (monthly/quarterly/half-yearly) or principal and accrued interest at the end of the tenor if s/he has chosen bullet repayment mode.
However, at times, due to unexpected circumstances, one is not able to pay their loan on time. If a loan is not paid for a long time, it can have repercussions which the borrower might not know of but will do through this post.
- Penal charges: Company is liable to charge penal rate of interest on the loan amount from the due date of loan. However, it is not applicable for agriculture loans up to certain limit
- Reminder text messages/call/letter-In case of persisting overdue, the company is bound to send periodic SMS reminders/ call/ email/letter to alert them about the overdue loan amount. In such a scenario, a borrower can reset their repayment schedule by visiting the branch office where he has taken loan from to avoid major contingencies.
- Auction: If full repayment of the loan is not made within the period of the loan, the company has the right to sell or otherwise dispose of the gold through public auction at the risk and cost of the borrower. However, the lending institution will inform the borrower about the same, two weeks prior putting up the pledged gold for auction.
- If there is any surplus on such sale, the company shall have the right to adjust that amount towards any other liability to the company. In other cases, it is refunded to the borrower within 30 days of auction.
- In case sale proceeds are less than the amount due from the borrower, the company shall have the right to resort to legal proceedings against the borrower to recover the shortfall.
How can you prevent loan repayment default?
If you are stuck in a similar situation, here is what you can do:
- Communicate your inability to pay on time with the lender. Company may at its sole discretion have the right to further extend the tenure of the loan which will give you enough time to repay your outstanding loan amount.
- To reduce your due loan amount, you can make part payment of principal with accrued interest.
The probable consequences of defaulting on a gold loan vary from one case to another. Even the action taken on the borrowers who default on their loan payments vary from one lender to another. While one should never default on their loan payments but in case of such an inevitable situation, one must understand what consequences defaulting on the gold loan will bring.
13 Comments
I have taken a loan of Rs. 5,00,000 and I don’t have any other pending dues with the bank neither in my individual capacity nor in joint capacity. My total gold worth as of now is Rs. 7,00,000. So just wanted to make sure how much I am going to receive if I want to settle my debt by selling gold to the bank. I know the bank gave us the loan on 80% of the total gold value. So how they are going to settle it?
Hi Ujwal,
Terms of accepting loan on behalf of your debt will differ from lender to lender. First of all you need to check with your lender whether they will accept the loan in lieu of your outstanding debt. Accordingly, they will inform you about the gold value they would consider for loan repayment along with other charges that may involve. It is better you connect with your lender directly.
What happened if a person died during gold loan period.
The gold loan and interest can be recovered from the savings account of the pawner (the one who had pledged gold ornaments). After adjusting the amount, who gets the gold articles depends upon whether there is a nominee/legal heir(s)/survivor or not.
If there is a nominee:
If the pawner had already nominated a person in case of his/her death, bank will return the articles to the nominee.
In case there is no survivor or nominee clause:
In case where the deceased had not made any nomination, banks are advised to adopt a procedure in consultation with their legal advisors for giving access to legal heir(s)/legal representative of the deceased locker
Legal heirs/ Claimants need to furnish the following details:
· Death certificate and Indemnity bond
· Proper receipts/acknowledgment specifically stating the gross/net weight of the ornaments
For more such information, it is always advisable to contact the branch office and they will guide you regarding the formalities to be complied with.
Hmm, so you are meaning to say banks can keep the profit made from the auction of such assets ? and what if they are no other debts due by you ? Also if gold value drops and banks can’t offset the remaining debt do you still get penalized for it ?
No, banks don’t keep the profit made out of that transaction. In case, you haven’t taken any loan, then surplus amount will be adjusted in their (Bank/small finance institution) capacity which varies from case to case. It is suggested to talk to the concerned person from an institution you have taken gold loan from to map out a way regarding surplus amount.