India’s gold loan market is expected to surge to ₹15 trillion by March 2027, according to a recent ICRA report. However, with defaults rising, both borrowers and lenders are becoming increasingly cautious.
As gross non-performing assets (GNPAs) climb, it is more important than ever to manage gold loans wisely to safeguard your jewellery and maintain an overall healthy credit profile.
Expert Views
Rishabh Goel, co-founder and CEO of Credgenics, spoke exclusively with Mint. He said, “Know your loan terms thoroughly and understand how gold price fluctuations affect your repayment. Create a realistic repayment plan that fits your budget and prioritise timely payments.”
He added, “Automate payments to avoid missing deadlines, pay more than the minimum whenever possible to reduce interest, and stay in touch with your lender for flexibility during tough times. Gold loans, when used wisely, can be a powerful tool to manage short-term financial needs—just stay informed and disciplined.”
Let us see five practical strategies to help you avoid defaulting on your gold loan.
1. Understand loan terms
You should never rush to pledge your gold. First, take time to understand the loan terms, conditions, processing fees, and obligations in detail. Then, get to know the loan-to-value (LTV) ratio. This figure is usually capped at 75% of your gold’s current market value.
Further, you should be clear about the interest rate, tenure, related processing charges (if any), and repayment methods. Many borrowers opt for bullet repayment loans, where the principal and interest are repaid at the end of the term.
Although this method appears convenient, it can easily lead to financial challenges later on if you don’t plan properly.
2. Create a realistic repayment plan
To avoid default, you should have a solid repayment plan before initiating the borrowing process. A solid repayment strategy goes a long way in keeping your finances in order.
That is why you should opt for a repayment structure that fits your income cycle. Regular EMI-based payments are generally more reasonable and manageable than lump sum repayments.
Hence, consider managing a separate fund or emergency buffer for your gold loan repayments. Consistent repayment can protect you from accumulating interest on penalties.
3. Monitor gold price changes
Fluctuations in gold prices directly impact your collateral’s value. Sudden corrections in gold prices may increase the risk of your loan breaching the LTV cap, prompting lenders to call for additional margins or even consider auctioning your gold.
That is why you should stay updated with market trends and borrowing terms and conditions. If prices begin to drop drastically, consider making partial repayments to maintain a healthier buffer and avoid unpleasant and unexpected surprises.
4. Consider alternatives before it’s too late
If you encounter repayment-related challenges, you should promptly consider exploring alternatives. You might even qualify for an overdraft facility against your gold, or you can discuss a restructuring plan for your loan with your respective lender.
Some financial institutions also provide grace periods or revise EMI plans to facilitate easy repayment during financial challenges or economic downturns. That is why taking early action helps maintain your integrity and overall credibility, as well as ensuring that your pledged assets remain preserved.
5. Maintain overall financial discipline
Planning finances in advance is always the best way to go. Consider writing down and maintaining overall loan obligations and future goals regarding education, health, home renovation, etc. You should also avoid taking out multiple high-interest loans simultaneously and ensure that your monthly income can comfortably cover all your pending obligations.
Budget sensibly, track and follow your expenses diligently and review your credit score and financial health regularly. These are powerful tools for sustaining a good financial profile. Hence, staying calm and cautious with your spending can foster repayment plans even during difficult times such as economic recessions and job losses.
Conclusion
Therefore, defaulting on a gold loan can result in immense emotional distress and financial difficulties for borrowers, including the loss of pledged valuable gold ornaments. It can also damage one’s credit profile and credit score.
That is why it is important to understand loan terms, monitor gold prices, maintain discipline, and explore alternatives with your lender just in case things don’t go according to plan. These are crucial steps that can go a long way towards protecting one’s gold and financial prosperity.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
