What Happens When One Fails To Repay Gold Loan

Unexpected conditions keep one from paying their loan on time. Want to know repercussions of missing gold loan? Read Now.

9 Jan,2023 11:04 IST 930 Views
What Happens When One Fails To Repay Gold Loan

A gold loan can be one of the easiest and best ways of borrowing money when one is falling short on cash. A gold loan is essentially a form of collateralised credit in which one’s personal gold ornaments are pledged to avail the loan. 

The best part about a gold loan is that the borrower’s credit history is not considered by a lender when considering whether his or her application should be approved or not. This is because the gold, which has been kept as collateral, can be confiscated by the lender in case of a default in repayment of the loan.

So, what happens when one fails to repay a gold loan?

If one does not pay one’s debts off in time, after having availed a gold loan, one stands the danger of losing the pledged gold. This is what usually happens when one fails to repay a gold loan on time:

Reminders By The Lender:

If a borrower fails to repay on time, the lender of the gold loan will first approach him or her to remind them of the due amount. In fact, lenders typically start sending reminders to the borrower as the due date for the loan repayment approaches. This communication is sent via emails, text messages and possibly even letters, if the due date has been crossed. 

Penal Interest:

The borrower will be charged a penal interest for the period for which the outstanding loan amount as well as the accrued interest remain unpaid. This extra interest will be on top of the interest that was originally applicable as per the terms of the loan. 

Credit Score:

Although a lender does not consider the borrower’s credit history while giving out the gold loan, if the borrower defaults on repaying the same, his or her credit score will be impacted negatively. The borrower will have a recorded default that will make it tougher for him or her to take out loans in the future. 

Auction The Gold:

In order to recover the money, the lender has the right to auction the gold that had been pledged in lieu of the loan. A lender will typically approach the borrower a few weeks before the auction in order to inform them of the impending possibility so that they have a chance to pay up and get their gold back.

Legal Action:

A lender also reserves the right to take legal action against the borrower for non-payment of dues if the money received as a result of the gold auction is not sufficient to make good the loan and interest. 


A non-payment or default on a gold loan may lead to the lender sending reminders, levying penal interest, auctioning the pledged gold and perhaps even taking legal action against you. So, you ought to repay the money in time and in full in order to get your gold back.

As a borrower you should choose a reputed lender that will not only offer the best rate of interest but also easier and customized repayment terms that other lenders, especially those in the unorganized market, may not. 

This will help you to not only repay the loan without any undue financial burden but also keep your credit score intact and save you from any possible legal hassles. 

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