Gold Loan Default: What Happens if You Don’t Repay Your Gold Loan EMI

In recent years, gold loans have gained popularity due to their low interest rates, minimal documentation requirements, and quick disbursal of funds.

However, it’s important to understand the implications if you find yourself unable to repay the loan.

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Gold loans are secured by pledging your gold as collateral, making them attractive to both banks and customers.

Here’s what happens if you fail to repay your gold loan within the stipulated period.

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Loan Default Consequences:

When a customer is unable to repay the gold loan, banks or Non-Banking Financial Companies (NBFCs) are compelled to take stringent measures. Initially, they send multiple reminders to the customer.

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If the loan remains unpaid despite these reminders, the option of auctioning the pledged gold arises.

Auctioning of Pledged Gold:

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When a customer pledges gold for a loan, a contractual agreement is established between the bank or NBFC and the customer.

This contract typically includes provisions for auctioning the pledged gold in the event of loan default.


Banks and NBFCs resort to gold auction as a means to recover the outstanding loan amount.

Notification Process:


Auctions are subject to predetermined terms and conditions that banks and NBFCs must adhere to.

Customers must be informed about the impending gold auction at least two weeks in advance.

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This notification period allows customers the opportunity to prevent the auction by repaying the loan amount.

Options for Customers:

Customers facing the possibility of gold auction can take certain actions to prevent it:

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  1. Full Repayment: Customers can approach the bank and settle the entire loan amount to halt the auction process.
  2. Partial Payment: If full repayment is not feasible, customers can discuss their financial situation with the bank. In some cases, the bank may accept a partial payment to avoid auctioning the gold.
  3. Request Additional Time: Customers can request an extension from the bank or NBFC to provide more time to repay the outstanding amount.

Impact on Credit Score:

Defaulting on a gold loan has a detrimental impact on the borrower’s credit score.

Banks and gold loan companies report such defaults to credit bureaus, resulting in a drop in the borrower’s credit score.

This, in turn, can make it challenging for the borrower to secure loans from banks or NBFCs in the future. If a loan is offered, the interest rates are likely to be significantly higher.

It’s essential for gold loan borrowers to be aware of these consequences and take prompt action if they face difficulties in repaying their loans to protect their creditworthiness and avoid the auctioning of their pledged gold.


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