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What Happens When You Don't Pay a Gold Loan?


Gold has been revered as a valuable asset for ages due to its inherent worth and stability. Many individuals turn to gold loans as a convenient borrowing option in times of financial need. These loans, secured by gold as collateral, provide a quick source of funds.

However, like any other loan, failure to repay a gold loan can have significant consequences.

This blog will explore the potential repercussions of non-payment of gold loan instalments and shed light on the importance of responsible borrowing.

Key Highlights

  • Non-payment of your gold loan may result in the forfeiture of your pledged gold.
  • Failure to repay your gold loan on time can lead to penalties, a negative impact on your credit score, potential auctioning of the gold, and other legal consequences.
  • You can proactively communicate with the lender, as they can help explore options such as loan restructuring or debt consolidation.
  • By selecting an appropriate repayment option that aligns with your financial needs, you can avoid the potential consequences associated with the non-repayment of a gold loan.

Understanding the Risks of Non-Payment of Gold Loan

Learning about the importance of repaying the gold loan amount prepares one to manage future financial liabilities effectively. As a result, it helps to plan and take measures to prevent such adverse situations.

So, if a gold loan remains unpaid for a long time, it can lead to the following actions:

1. Repeated Reminders for Due Instalment

Lenders often remind when the due date for payment is getting close. If the lender still doesn’t receive the instalment, they try to communicate via emails, texts, and even letters. They send notifications to remind defaulters to pay the due instalments.

The reminders help to keep one informed about any potential repercussions of delaying or missing your instalments.

2. Charging Additional Interest

The lender will also apply late payment charges for gold loans, applied extra to the previous interest rate. The additional rate, called the penal interest, applies to the months you didn’t pay the instalment.

The Shriram gold loan penalty interest rate  on the outstanding amount depends on the specific gold loan scheme.

3. Negatively Impacting the CIBIL Scores

An individual’s credit score can suffer significantly due to non-payment of gold loan instalments. The lender will notify the credit bureaus about the same, reporting their credit history. It can make it more difficult for them to obtain credit in the future. Even if they get the loan, the interest rates will be higher.

4. Auctioning the Gold Assets

As per the gold loan auction rules, the lender has the right to auction the gold pledged as collateral for the loan in case of non-payment.

The lender can sell the gold to recover any losses incurred due to the gold loan's default. In such a situation, the lender will contact the defaulter at least two weeks beforehand to inform about the auction.

5. Legal Actions by the Lender

Lenders may also take a legal route if the auctioned amount is insufficient to cover the losses incurred. The exact legal actions may vary depending on the jurisdiction and the loan agreement terms.

It may include filing a lawsuit, obtaining a court judgment, and implementing debt recovery processes. Such actions, although seldom, can lead to additional financial burdens, like legal fees and court costs.

How to Prevent Loan Repayment Default?

Preventing defaulting from the repayment of a gold loan requires proactive measures and responsible financial management. Here are some essential steps to help avoid the above risks:

1. Communicate with the Lender Effectively

One must inform the lender if they suspect any delay in payments.

Maintaining clear communication can help you and your lender collectively explore various alternatives to resolve the situation. You can also request an extension of the loan tenure. However, remember that it’s up to the discretion of the lender to consider any requests or not.

2. Consider Loan Restructure

One can approach the lender to negotiate the loan terms. They can ask to make the repayments more manageable and request longer tenure or lower EMIs.

Choosing the Right Repayment Option for Gold Loans

Ensure avoiding gold loan default by picking a repayment option that's right for you. Here are the repayment options one can choose to settle the loan amount.

  • Deferred principal payment allows to continue paying the interest amount in EMIs and the principal amount later as a lump sum.
  • The bullet payment option allows to pay the entire principal amount upon maturity with interest. However, this is available for short-term gold loans with a tenure of up to one year.
  • Partial repayment is another option that lets one pay principal and interest payments whenever they choose. As a result, one can create your repayment schedule to suit their needs.
  • EMI payments are a popular repayment option for salaried employees. At Shriram Finance, one can pay principal and interest amounts in EMIs monthly, bi-monthly, quarterly or half-yearly.

Summing Up

When considering a gold loan, applying for the required funds is essential. Borrowing more than one can repay within the loan tenure can create multiple issues. By taking proactive steps and staying financially disciplined, one can minimise the risk of non-payment of gold loan instalments and maintain a healthy financial standing.

Remember to check the gold loan features of reputable lenders to ensure they have different repayment options.


1. What legal action can be taken if the loan is not paid?

While the gold loan is a secured loan, the lender can auction your gold asset to recover the loan amount. However, the lender may file a lawsuit to recover the difference from the borrower if the amount recovered from the auction is insufficient.

2. Is there any penal interest on gold loans?

If you miss a repayment, the lender may charge a penalty interest in addition to the monthly interest. For instance, Shriram Finance may levy penalty interest on outstanding payments depending on the gold loan scheme.

3. What are the penalty charges for a gold loan default?

Some lenders levy an additional penalty charge for late payment. At Shriram Finance, the penalty charges for a gold loan default depends on the scheme.

4. What happens to the loan if the borrower dies?

If the borrower dies, the family members are responsible for repaying the remaining gold loan amount. The lender would auction the gold possessions if they cannot settle the bill within the agreed-upon time frame.

However, if the borrower had insurance, the insurance company pays the leftover amount on the borrower’s behalf.

5. Can the gold loan be transferred to another lender?

Yes, you can get your gold loan transferred to another person. However, it may involve extra charges with the gold loan balance transfer.

For instance, you may need to pay foreclosure charges to your previous lender and processing fees to the new lender.

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