For centuries, gold loans have remained a widely favored method for accessing funds. This borrowing approach boasts a rich historical presence and continues to hold immense popularity. Formal financial institutions have capitalized on this by providing an attractive credit product, offering advantages like reduced interest rates, streamlined application procedures, minimal paperwork, swift fund disbursement, and a variety of repayment choices.
Gold loans have shorter repayment periods compared to other types of loans. For long-term loans, where you pay in installments with interest, you usually get up to 24 months to finish paying, and you clear the main loan amount at the end. But if you have a short-term loan that you are repaying all at once, you usually get about six months to do that.
People preferred to opt for gold loan due to various advantages such as,
Flexibility – Gold loans offer borrowers a flexible way to access funds quickly without stringent eligibility criteria.
No Income Proof – Unlike other loans, gold loans may not require extensive income proof documentation.
Quick Processing – The loan processing time is usually shorter compared to other types of loans.
Secured Loan – As the loan is backed by collateral (gold), interest rates are often lower than unsecured loans.
All-purpose Usage – Borrowers can use gold loans for various purposes, including emergencies, education, medical expenses, or business needs.
A gold loan is a type of loan where you give your valuable gold, to the lender as security. This makes it easier for people with not-so-good credit history to apply. But sometimes, people can’t pay back the loan on time. It is important to know that not paying on time can have different outcomes depending on the situation. Different lenders also do different things if you can’t pay. But if you are in this situation, there are steps you can take to prevent it from getting worse or to improve things if you are already in trouble.
Keep your pledged gold items safe from being sold
If you don’t pay back the full gold loan on time and you keep getting reminders, the lender can sell the gold to cover what you owe. The lender tells you about this auction two weeks before it happens. To stop the auction, you should respond to the notice on time. Sometimes, you can make a partial payment mentioned in the notice, but it depends on the lender’s decision. If you are having trouble paying, you can talk to the lender about getting more time to pay or paying a part of it to manage your debt.
Understand and decide on how to pay
You have different ways to pay back the main loan and the extra money you owe. One way is to pay a bit of both every month. This is good if you get the same money every month. Another way is to pay the extra money at certain times and pay back the main loan at the very end. With this choice, you don’t need to think about paying back the main loan all the time.
Also, lenders give the choice to pay a little bit of what you owe whenever you can during the loan time. Another choice is called “bullet repayment,” where you give back both the extra money and the main loan at the very end of the loan time. The extra money you need to pay is calculated every month, but you only have to give it all at the end of the loan time. With this way, you don’t have to worry about paying a bit every month or following a fixed schedule.
It is important to know that lenders follow rules and give a written warning before taking legal steps if you can’t pay back the loan. They don’t aim to punish borrowers or take away their rights. Instead, they give a certain time to pay the money you owe. They keep in touch through emails, texts, calls, and letters if you miss payments or can’t pay the gold loan. These reminders help you understand what is going on. If you are in this situation, you should check how much you can pay back and talk to the lender to change the plan if needed.
Impact on Your Credit Score
Your credit score doesn’t affect whether you can get a gold loan or not. But if you can’t pay back the gold loan, it can influence your credit score. In India, companies that give gold loans tell the credit bureau if you can’t pay. The credit bureau tells other financial institutions. This lowers your credit score and makes it harder to get loans later. If you do get a loan, you might have to pay more interest.
Gold loans offer a historical and practical route to funds, favored for their advantages. However, defaults hold consequences like credit score impact and potential asset auction. Lenders aim to aid borrowers through transparent communication. By understanding options and taking proactive steps, borrowers can manage their loans effectively, preserving both finances and credit standing. Making informed decisions ensures that the benefits of gold loans endure while securing financial well-being.
