What is Gold Loan Auction?

India is one of the biggest consumers of gold worldwide, where almost every household buys gold either for auspicious or investment objectives. Numerous Indians utilize it in a gold loan scheme. However, what happens if the borrower fails to repay the loan to the lender? The resulting situation comes down to a gold loan auction.

What is Gold Loan Auction?

Gold loan schemes are financial products that allow individuals to avail a loan amount by pledging their gold as collateral to the lender. The lender determines the gold value against the current price of the gold in the domestic market and offers a loan amount based on a certain percentage of the gold value. The gold loan offered to the borrower is at an interest rate, which the borrower is liable to repay along with the principal amount over the loan tenure.

However, there may be times when the borrower fails to repay the interest payments or the principal amount to the lender. In such a case, the lender can sell the pledged gold of the borrower to realize the outstanding loan amount due within the repayment tenure.

Once the gold loan becomes a Non-Performing Asset (NPA), they can use the provisions set by the Association of Gold Loan Companies to sell the pledged gold articles through a public auction. Here, the auction is called Gold Loan Auction.

Gold Loan Auction Process In India

Before the auction, lenders must contact borrowers to inform them that their gold articles will be in the auction. After the expiry of such notice, the lender may go ahead and follow the below gold loan auction process:

1. Appointing The Auctioneer

The first step in the gold loan scheme auction is to appoint an auctioneer. It is mandatory that the auctioneer is independent and selected after inviting and screening various applications. Furthermore, the board of directors of the lenders approves the auctioneer

2. Place Of The Auction

Before the auction, the designated place must be set and communicated by the lender. Generally, the gold loan auction is conducted in the town and the branch of the lending company, which initially extended the loan against gold to the borrower

3. Communication For The Auction

The lender must publish the auction notice in two newspapers; one in the local newspaper in the local language and one in the national daily newspaper. The auction notice must contain factors such as the date, time, and place of the auction, along with the included terms and conditions

4. Guidelines

At the time of the auction, the lender must follow certain specific auction guidelines. The lender must communicate the fixed-minimum amount to be recovered, reserve the price for the gold articles, and identify the branch staff and the bidders by collecting their KYC documents. Furthermore, the lender must also display the gold articles to the auctioneers and the bidders before starting the auction

5. Delivery

After the documentation, the highest bidder can take the delivery of the gold articles within three working days from the date of auction. However, the highest bidder can only take the delivery after depositing the bid amount with the lending company. The lender company must give a sell receipt to the bidder and receive a purchase receipt in return

6. Loan Adjustment

After the auction, the sale proceeds are adjusted against the borrower’s account with the lender. They have the right to send a demand notice to the borrower to recover the balance dues if the sale proceeds are lower than the outstanding amount. If the loan proceeds are higher, the borrower is refunded the balance amount.

Reasons for Gold Auction

There are several reasons when you need immediate funds in life. In an Indian household, buying gold is considered auspicious and an act of investment. So, if you require instant funds, you can consider securing a gold loan using your gold jewellery as collateral which can be your financial saviour.

There is a systematic process to secure gold loans in our country. The lender would firstly evaluate the gold jewellery against the current price of gold in the domestic market and then offer the loan amount based on a specific percentage of the gold value. The gold loan offered will be at an interest rate over time that the borrower shall have to repay besides the principal amount.

How is the Gold Loan Auction processed?

The Gold Loan Auction process in India has certain rules that are mandatory and there is a specific gold loan auction notice format followed by the lenders. They must contact the borrowers before auction to notify them that their gold articles will be in the auction through a gold loan auction notice format that would essentially bear details like Auctioneer, venue of auction, communications for the auction, guidelines of the auction, delivery process and loan adjustment procedures. In the event of the expiry of such goldloan auction notice, the lender may go ahead and follow the gold loan auction process.

It may so happen that the borrower is unable to repay the interest payments or the principal amount to the lender in a specific time. In such an instance, the lender can go ahead and auction the pledged gold of the borrower who is informed by a gold loan auction notice and this entire process helps the lender recover the money they lent you when things don't go as planned.

Advantages of Gold Loan Auction

There are both advantages as well as disadvantages of gold loan auction; let us see the advantages first:

• Both the borrower and the lender accrue benefits from the gold loan auction.
• In case of the lender, this provides an option to liquidate assets and recover some or all their investments in a short time.
• For the borrower, the low interest rates that lenders offer is a benefit as they pledge collateral in gold.
• On facing difficulties in repaying a gold loan, borrowers can try to engage in open communication with lenders to negotiate for extended repayment schedules.

Disadvantages of gold loan auction

• Borrowers have a risk of valuable asset loss if they default on repayment
• The Loan Amount often is limited to a fraction of the gold's value.
• Gold Prices can fluctuate and this would affect the loan-to-value ratio.
• Sometimes lenders attempt to misinform borrowers about the loan agreement or misrepresent the amount of gold being offered. It is thus crucial to do thorough research before trusting a lender.

Benefits of gold loan auction

• Gold loans are secured loans that we can leverage on the value of gold jewellery to get funds. Some benefits are:
• Gold loan auctions are quick and hassle free and lets us access liquidity while keeping our cherished possessions safe.
• Gold that mostly stays in lockers and bank vaults idly can be put to use for securing gold loans
• You can repay the interest for gold loan auctions at your ease as it is spread out over a period.
• Low interest rates on gold loan auctions can significantly impact your borrowing experience thereby saving your interest costs, managing your expenses and ensuring a smooth repayment experience.

To secure a gold loan you need to do thorough research to get industry-best profits from a lender who has instant fund processing benefits on your gold that would be affordable with transparent structure and no hidden costs. As per the gold loan auction policy ….

Avail A Gold Loan With IIFL Finance

With IIFL Gold loan scheme, you get industry-best benefits through our process designed to offer instant funds based on the value of your gold within 30 minutes of application. IIFL Finance Gold Loans come with the lowest fee and charges, making it the most affordable loan scheme available. With a transparent fee structure, there are no hidden costs you have to incur after applying for the loan with IIFL Finance

FAQs

Q.1: Is the borrower contacted before the auction?

Ans: Yes, the borrower is informed through every means possible and served an auction notice before the auction takes place.

Q.2: What is the interest rate on IIFL Finance Gold Loans?

Ans: IIFL Finance gold loan schemes come with attractive interest rates ranging between 6.48% - 27% p.a.

Q.3: What documents are required for IIFL Finance’s Gold Loan?

Ans: Documents required are Aadhar Card, PAN Card, Driving License, Passport, Ration Card, Electricity Bill, etc. Visit the IIFL Finance gold loan page to get the complete list of documents to submit.

Q4. What is the auction period of a gold loan?

Ans. A company has the right to sell gold jewellery pledged by the borrower by way of public auction if the concerned loan amount becomes overdue by 90 days after the expiry of the due date.

Q5. Is it safe to buy gold in auction?

Ans. A gold auction can be the place for you if you are looking for a good investment opportunity. However, one needs to be sure to research, set a budget and understand the risks prior to participating.

Q6. What is the RBI gold auction policy?

Ans. The key directives of the RBI gold loan auction policy essentially include the following:

• A licensed auctioneer should manage the auction
• The nominal bid price for every piece of gold article should be at least 80% of its apprised price
• NBFCs are prohibited from participating in the auction.
• Borrowers or their representatives can participate in the auction.
• The income from the public sale is to be used to settle the mortgage amount and incase of any excess, it should be returned to the borrower.