What is Gold Loan default? It refers to failing to pay back your Gold Loan as per the schedule. You could miss your loan payments due to financial troubles like losing your job or unexpected large expenses. However, a Gold Loan default can have serious consequences. You should avoid defaulting on your loan through careful financial planning.
Aftermath of Gold Loan defaults
1. Payment reminders
Your lender will first attempt to recover their pending dues from you. You will get constant reminders through calls, texts and emails from your bank.
This is your opportunity to discuss and negotiate your loan repayment terms with your lender.
2. Additional interest and charges
When you miss your loan instalments, banks levy additional interest and late repayment penalties. This only adds up to your total outstanding debt.
3. Auction of the gold
The bank can choose to auction the gold you provided as a security. The proceeds of selling your gold will be used to recover the outstanding loan amount. However, banks use this method only as a last resort. Lenders will try their best to encourage you to pay back your dues first.
4. Negative impact on your credit score
Missing your Gold Loan instalments will negatively affect your credit score. Loan defaults can stay on your credit file for up to 7 years. Due to a Gold Loan default, you may have trouble applying for other loans and Credit Cards in the future.
Essential tips to prevent a Gold Loan default
- Plan well ahead: Use an online EMI calculator to estimate your Gold Loan EMI before you apply for it. This gives you enough time to prepare yourself financially and mentally for the upcoming payments.
- Automate EMI payments: You can provide a standing instruction to your bank to deduct your Gold Loan EMI automatically from your Savings Account every month. This reduces your chances of missing out on the repayment.
- Prepare a monthly budget: Create an expense budget every month and follow it strictly. Make sure your EMI is the first expense you budget for.
- Select a reputed lender: Choose a lender who is offering you a Gold Loan with reasonable interest rates and flexible repayment tenures to ensure that you pay your dues on time.
Axis Bank, for instance, provides Gold Loans between ₹25,001 and ₹40,00,000 at competitive Gold Loan interest rates. You can choose a suitable tenure ranging from 6 months to 36 months.
Also Read: What is Gold Loan repayment? - Meaning, types & procedure
Conclusion
A Gold Loan default can lead to heavy penalties, additional interest payouts and auction of your gold. You should try to avoid this situation by ensuring to pay your Gold Loan EMI on time every month. Paying your dues regularly improves your credit score and helps you get loans or credit at better terms in the future. It is always recommended to take up loans only when you can afford to pay your EMIs on time. Partner with Axis Bank for seamless Gold Loan solutions.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
