Within retail loans, gold loan is currently the fastest-growing loan category. According to the Reserve Bank of India’s Feb’22 data gold loan had experienced a year-on-year growth of 26.2% with the total amount outstanding of Rs 71,408 crore.
Gold loan is a secured loan that one can opt for against gold jewellery, gold bars, or gold coins. The interest rates are lower than those charged on personal loans, these are usually short-term loans and easily accessible compared to personal loans.
5 BENEFITS OF GOLD LOAN COMPARED TO OTHER CREDIT FACILITIES
- Credit Score Optional – For those with a low credit score or no credit score, gold loan is a quick and easy means to finance.
- Employment Status Immaterial – Self-employed, professionals, unemployed are all charged at the same rate.
- Easy Access and Approval – Documentation is usually minimal, and the approval happens very quickly. It can be easier to get a gold loan without a bill than to even get a personal loan.
- Low Rate of Interest – the gold loan rate of interest can often be as low as 7% p.a., since it is a secured finance.
- Prepayment Option – Depending upon the terms of your agreement, you can get your jewels back early without any extra charges.
5 CONSEQUENCES OF DEFAULT ON YOUR GOLD LOAN
Due to unforeseen circumstances, the borrower may fail to meet his financial commitment on time. It is essential to know the consequences of such a unfortunate development:
1) Repeat Reminders
The lender would try to get in touch with you via digital and non-digital mediums to remind you of the outstanding. The reminders will be intended to educate the borrowers about the possible consequences of default.
2) Penal Interest
Depending on the terms of the agreement the lender might charge an additional interest over the usual applicable interest rate. This late fee will be applicable for the months on which the payments have not been made. This extra interest, also known as the penal interest, is usually charged at the rate of 1% p.a. to 7% p.a.
3) Credit Score Impact
Lenders send a monthly report to the credit bureaus listing out the repayment pattern of their borrowers. Based on this the Bureau updates credit score, which forms the basis of future borrowing capability of the borrower. A ‘defaulter’ status marked in the credit report will lower the credit score and make it difficult for the borrower to be eligible for any credit in the future.
4) Auction
Generally, the loan agreement grants the lender the rights to auction the mortgaged gold. To reclaim the losses caused due to non-payment of the gold loan, the lender can choose to auction off the existing asset. The borrower will receive prior intimation of the lender’s intention to auction the gold and will be given a chance to retrieve the gold by repaying the debt.
5) Legal Action
Gold prices are subject to fluctuation, if at the time of the auction the prices are lower than the time the agreement was entered into, the proceeds of the auction might not be sufficient to cover the loan amount. The lender could resort to use his right to take legal actions against the defaulter in case of such a loss. To recover the shortfall, the lender can initiate legal actions against the borrower, which would mean additional expense for the borrower.
Timely repayments of gold loan helps you secure your wealth, maintain a good credit score, save for the future, and be stress-free. If you feel you need guidance in getting better at credit management, reach out to our Debt Counsellors.
