Gold is an excellent way to get money in a pinch. In terms of repayment, gold loans provide flexibility. Depending on your needs and budget, you can pay in whole, in instalments, or through EMIs. Understanding these payment plans, on the other hand, is crucial to having a pleasant loan term.
This historic method of lending-borrowing gold ornaments has evolved into the current financial environment, with gold loans now available from all major public and private sector banks, as well as non-banking financial entities.
Other loans, comparable to gold loans, are available on the market. These loans have the same goal of getting the borrower the money they need quickly and easily. Personal loans and credit card loans are the two types of loans. Gold, personal, and credit card loans all offer their own set of benefits and drawbacks. However, one area where gold loans excel is that they are always secured loans, meaning they are taken out against collateral, in this case gold jewellery.
When cash is needed fast, gold is an excellent investment. Indians have a strong emotional attachment to gold, which drives them to collect jewellery, coins, and bars made of the precious metal. When cash is needed urgently, gold assets owned by families are typically committed to banks and other money lending institutions. The gold serves as collateral with the bank until the debt is entirely paid off. The amount of the gold loan and the interest rate differ based on the bank and the gold, as well as the length of the loan. You have a few alternatives for repaying the principle and interest on a gold loan once you’ve taken one out.
5 Ways to Repay Your Gold Loan
The following are the 5 Ways to Repay Your Gold Loan
1. Pay the Interest as an EMI and the Principal Afterwards
Under this type of gold loan repayment, you have the right to refund the interest owing on the loan according to the EMI schedule specified by the lender. You can, however, make a single payment to eliminate the principal. This payment might be made after the debt is paid off. Borrowers choose this kind of repayment since it allows them to pay only the interest and not the principle during the gold loan payback term.
2. Make Part Payments
If you pick this type of gold loan repayment, you are not obligated to follow the lender’s EMI programme. You can choose to make partial interest and principal payments at any time. As a result, you’ll be able to customise your repayment schedule to meet your budget. If you opt to pay the principle amount right immediately, your total interest payment, which is calculated daily on the loan amount that remains outstanding, is lowered. You save a lot of money on serviceable interest as a consequence.
3. Option for Regular EMI
A gold loan repayment plan based on a regular EMI is designed for salaried individuals with a consistent monthly income. Both the interest and the principle are repaid in the EMI amount payable. The loan is granted faster since it is advantageous to salaried individuals.
Gold Loans, on the whole, have no lock-in periods and short payback terms. The maximum term for a gold loan is five years. The loan account will be cancelled at the end of your duration, once you have deposited the outstanding loan amount and interest due. The lender will return the gold goods pledged upon satisfactory repayment of the loan.
4. Bullet Repayment
You must return both the interest and the principal amount at the conclusion of the loan’s term if you choose a bullet repayment plan. You won’t have to worry about repaying your gold loan at any point during the loan term. You don’t have to stick to any EMI schedule and can pay off the loan in full when the term is over. The loan’s interest is computed every month, but it is only due at the conclusion of the gold loan’s term. This type of gold loan repayment is known as a bullet repayment plan since you repay the loan completely at once.
The loan account will be terminated once you have deposited the outstanding loan amount and interest due at the end of your term. If the loan is successfully repaid, the lender will return the gold goods pledged.
The term “foreclosure” refers to repaying the entire loan amount before the loan term expires. Pre-closure payments can also be used to repay a gold loan. You have the option of paying off your entire debt before the due date. This type of repayment lowers the interest rate and the overall cost of the loan. If you pay the whole amount at the start of the loan term, the interest rate for the remainder of the term will be lower. If you earn money during your term, for example, you may easily pay off your gold loan and take your gold home.
How a Gold Loan is Pre-Closed?
There may be occasions when the interest becomes too much to bear, or when you get a large sum of money to assist you with the foreclosure of your gold loan. In such instances, you have the option of requesting loan foreclosure from your lender. Pre-closure of a gold loan would cost most banks and other lenders up to 2% of the amount sanctioned.
The gold loan is advantageous due to the lack of paperwork and simplicity of access. Borrowers must, however, select a repayment plan that meets their circumstances and does not seem burdensome. Salaried workers, for example, should choose EMI payments over bullet payback if their credit cycle is slow. Most gold loans do not include a prepayment penalty or a minimum lock-in term, so you may pay them off whenever you choose. The majority of gold loans have short payback terms, with most having a maximum of 5 years and an average of 1 year or less.
When you go to the lender to shut your gold loan account, you must deposit the outstanding loan principle amount together with the current interest rate, and the account will be closed. Once the loan account has been closed, the responsible authority (usually a bank branch manager) will return the collateral gold to you and request your signature.
What happens if you don’t pay back your Gold Loan on time?
A secured loan is a gold loan. If you fail to return the loan for an extended period of time, you may face serious consequences. Here’s what happens if you pay back your gold loan on time:
The lender might impose harsh penalties based on the amount owed as of the loan repayment due date. The rate charged is between 1% and 7% and has nothing to do with the standard gold loan rate.
- Constant Reminder
If you consistently miss payments, your bank will send you reminders in the form of text messages, phone calls, emails, and letters. These would serve as a reminder of the amount owed as well as the consequences of not paying at all.
If you disregard these warnings or are unable to pay your debts, the lender’s last recourse is to sell your collateral to meet his obligations. He has the authority to sell or organise a public auction in any way he sees fit. He’ll let the borrower know about it, as well as the fees of the arrangement.
If the auction earnings exceed the amount owed, the bank will credit the borrower’s account within 30 days following the auction. Banks might pursue legal action to collect their debts if the same is lower.
- Your Credit Score will be affected
It has nothing to do with your credit score when you take out a gold loan, but non-payment has a huge influence. The credit bureaus will be notified, and all lenders will be notified as well. You will be unable to obtain loans, or if you can, the interest rate will be greater than usual.