Getting a loan against gold is an excellent way to get instant access to funds. Lenders offer competitive interest rates, making it more affordable than other credit options. But, like any other loan, it also carries the obligation of timely repayment.
However, the consequences of non-repayment can be more serious in this credit facility as it is a secured loan. This means that if you fail to repay the loan, the lender can seize the assets you pledge as collateral.
To avoid this, plan your repayment carefully. Lenders offer different repayment options, allowing you to come up with a plan that best fits your current and future finances. The best way to choose the right repayment plan is to understand these different options.
So, read on to learn the different repayment options for a loan against gold.
5 Methods to Effortlessly Repay Your Gold Loan
Here are various methods through which you can service your gold loan. Choose them based on the amount you borrow and the tenure you get based on your gold loan eligibility.
Equated Monthly Instalments (EMIs)
EMIs are a common way to repay a loan against gold. The monthly instalments you pay constitute a portion of the principal amount and a portion of the interest due. This approach can be best for salaried individuals, who can easily pay EMIs by earmarking a part of their monthly income towards it.
Many lenders also offer the flexibility to select a monthly, quarterly, or semi-quarterly repayment plan. This is a highly convenient repayment option because you can set auto-deduction instructions for the required amount from your bank account on the due date.
Choosing this method of repaying your gold loan has the added benefit of reducing the interest burden as the loan term progresses. Moreover, it relieves the stress of making a lump sum payment.
Partial Payments
Another way of repaying your gold loan involves making partial payments. You can make partial payments towards both the principal and the interest. The main benefit of this option is that you can tailor the partial repayments to your finances.
This repayment method is suitable if you have an irregular influx of income, where repaying every month can be challenging. By opting for this repayment plan, you can service your loan whenever funds are available.
Many financial institutions do not impose fees or charges for partial payments on a loan against gold. You can easily customise your partial payment arrangement with your financial institution.
Monthly Interest Payments
Another way to repay your loan against gold is going for monthly interest payments. This approach resembles EMIs, but there is a difference between the two. In this method, you only pay the interest that accrues on the principal amount.
You do not pay the principal amount every month. Instead, you settle it at the end of your repayment tenure, all in one go. The monthly repayment amount in this plan is comparatively lower. As such, if you lack regular monthly income to sustain the repayment through an EMI plan, this becomes the ideal option.
Bullet Payment
Another repayment option that you can choose is bullet payments. In this method, you need to settle both the principal amount and the interest amount at the maturity of the gold loan. You do not need to make any repayments during the loan tenure.
You repay the entire dues, including the principal and the interest, in one lump sum, which is why this method is called ‘bullet payments’. This straightforward repayment method does not impose the burden of making monthly repayments.
The accumulated interest with this repayment method can be higher. This is because your principal amount does not reduce with the tenure as it does in an EMI plan. However, this method can be ideal if you have a short-term gold loan and no monthly income.
Prepayment
Prepayments, partial or whole, are another repayment strategy you can use for your loan against gold. In this method, in addition to the EMIs you pay, you can make lump sum payments during the tenure.
Also known as partial prepayments, such part-prepayments lower your outstanding amount, resulting in a reduced EMI or a reduced tenure.
Apart from partial prepayment, you can opt for a complete prepayment, also known as foreclosure. In this way, you make one lump sum payment to repay the entire outstanding amount when you have the funds to do so.
You can save on the interest outgo when you make a partial or complete prepayment. These methods also relieve you from your loan obligations before the maturity date, making you debt-free earlier.
So, if you get additional funds, consider foreclosing your gold loan. This can be a smart financial decision since you save money in the long run. However, lenders may levy additional charges when you make a prepayment.
As such, it is crucial to consider the amount you pay against the amount you save to determine if prepayment is actually feasible.
Things to Consider While Getting a Gold Loan
Borrowing is an important decision that demands caution. Here are some important points that you must consider when getting a loan against gold.
Value the Purity of Your Gold
Knowing the value of your gold asset is essential when considering a loan. This is because the purity of the gold is a significant factor in determining the loan amount that you can get.
The higher the purity, the higher the valuation and, consequently, the loan amount. In fact, many lenders set the purity level as a gold loan eligibility criterion. As per this, you can only pledge gold assets that have a purity of 18 to 24 karats.
Ensure You Choose a Credible Lender
In a loan against gold, the asset you pledge as collateral stays with the lender until you repay it. Your gold asset is not only expensive but will also likely hold sentimental value. Therefore, ensuring the safety of your asset is essential.
To ensure this, you must choose a reliable and certified financial institution. You can contact the lender or visit their website to understand the safety measures they take to ensure that your asset is secure.
Research and Compare Options
Before choosing a lender, compare the different options available online. Different lenders have different gold loan eligibility requirements, loan terms, and other conditions.
As such, your cost and experience will significantly depend on the lender you choose. To get the best deal, choose an option that offers affordable funding and favourable repayment terms that align with your requirements.
Check the Fees and Charges
In addition to the interest, lenders levy some other fees and charges when offering a loan against gold. These include late payment charges, foreclosure charges, processing charges, etc. There are terms and conditions under which the lender can levy these charges.
Therefore, if you are considering a gold loan, you must go through these charges to avoid any surprises during repayment.
Understand the Auction Terms
Non-repayment of your gold loan can lead to the auction of your gold assets. The lender has the legal right to sell your asset and recover the dues. However, the lender generally does not auction your assets immediately after you miss a repayment instalment.
This happens as per the terms and conditions laid out in the loan agreement you sign while getting the loan. So, be sure to go through these conditions to minimise the risk of losing your asset in case of non-repayment.
Repaying your loan against gold has never been more convenient. You have the flexibility to choose from various repayment options based on your financial standing and personal preferences. So, carefully consider your finances and choose one to have a hassle-free experience.
