What Happens When One Fails To Repay Gold Loan

What happens when you fail to repay your gold Loan?. Get to know the consequences of missing an loan payment & other details here. Visit Now!

20 Sep,2022 10:02 IST 36 Views
What Happens When One Fails To Repay Gold Loan

In India, gold holds a prominent position. Apart from its traditional importance as jewellery, artefacts, and heirlooms, this yellow metal is also an investment. For years, gold was used in times of urgent liquidity requirements. Due to multiple reasons, including sentimental value, emotional attachment and ancestral property, people opt for gold loans rather than selling the asset.

However, people fail to repay the loan on time for various reasons. What happens then?

The pledged gold is sent for auction when the borrower fails to repay the loan within the scheduled tenure. The gold loan auction is described in detail below.

Gold Loan Auction

In gold loans, the borrower pledges gold as collateral and receives a loan amount. The lender evaluates the value of the gold based on the domestic market price list and offers a loan amount. This loan amount includes the principal amount with the rate of interest. There are several ways of repaying the loans, like monthly EMIs, partial payment systems, and EMIs, including interest and pay later, among others.

However, there are times when the borrower fails to repay the loan on time. In such cases, the lender may use the pledged gold to settle the loan amount. It is treated as a non-performing asset, and the lender organizes a public auction to sell the gold.

The Auction Process In India

As per the Association of Gold Loan Companies guidelines, banks must inform the borrower before the auction. If the borrower doesn't take action, the bank will go ahead with the auction.

1. Appointment Of The Auctioneer

The first step in the auction is to appoint the auctioneer. The bank must appoint an independent auctioneer after proper screening.

2. The Venue Of The Auction

The auction's venue ideally lies within the geographical borders of the city/town wherein the loan was initiated. The bank must communicate the location of the auction to the borrower.

3. Announcement Of The Auction

The lender must communicate the information about the auction in the local newspaper and daily national newspaper. The notice must contain the auction date, time, and place. Additionally, the statement should explicitly mention the terms and conditions of the auction.

4. Guidelines For The Auction

The lender must show the gold item and quote the recovery amount to the bidders and the auctioneer. The bank must reserve the price of the gold item and collect respective KYC documents to identify bank staff and bidders.

5. Delivery Of The Item Sold

Within three working days of the auction, the highest bidder can collect the item from the lender. However, the bidder has to deposit the entire bid amount to the lender. The bidder should also collect the sale receipt from the lender and share the purchase receipt.

6. Loan Adjustment

After the auction, the loan amount is processed for settlement. If the bidding amount is less than the loan amount, the lender is eligible to go ahead with legal proceedings for complete recovery. If the bid amount exceeds the total recovery amount, the excess amount is transferred back to the borrower's account.


Q1. Can the non-payment of gold loans affect borrowers credit scores?
Ans. If the borrower fails to repay the loan on time, their CIBIL score does get affected. However, the dent in the credit score is temporary.

Q2. How long will CIBIL hold the record of defaulting gold loans?
Ans. CIBIL keeps credit records for a minimum of seven years.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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