Gold loans are becoming increasingly popular with borrowers as they offer better rates and flexible repayment options. Borrowers can get loan amounts of up to 90% of the market value of the gold. Also, the processing time is less than a day.
A gold loan is not like your typical installment loan, where you pay an EMI every month.
Gold loan offers different repayment options -
1. Pay Interest As EMI & Principal At The Time Of Maturity
Paying interest regularly helps you reduce the overall interest burden on your gold loan. So, when the loan matures, you can just pay the principal amount as a lump sum and get back your gold. Since you are paying only the interest part, your monthly EMI won't be very high and you can manage it easily.
This repayment method is suitable for new businesses where the cash flow is restricted.
2. Regular Repayments Of Interest And Principle Component
This is not a fixed EMI payment plan, but you conform to regular payments of some amount towards the interest and the principal outstanding. Some people choose to make a lump sum repayment in regular intervals. That works well too. The key here is to ensure that you are servicing the loan regularly to prevent huge interest build up.
This is definitely a gold loan customer-focused strategy! Regardless of the predetermined EMI schedule, partial or even full payment of both the interest and principal components is permitted. Your total interest payment, which is typically determined daily based on the amount of the loan outstanding, will inevitably decrease if you pay off your principal first. You can avoid paying a lot of additional interest this way.
Also Read: Beginners Guide To Gold Loans
3. Bullet Repayment Option
This is by far the most popular repayment option with gold loans. Here, you repay the interest and the principle as a lump sum at the end of the loan tenure. As a result, there is no need to make any monthly payments. You can simply repay the loan and retrieve your gold from the bank all at once. Bullet repayment scheme is generally available only with short-term loans, typically those with a repayment tenure of six months to 12 months. But they are very beneficial for new businesses who need a huge capital for initial investment.
Additional Read: 8 Smart Benefits Of Taking A Gold Loan
4. Standard EMI Plan With The Interest & Principle Components
This is the easiest way to repay your gold loan. This plan is similar to any other installment loans repayment. You make a fixed EMI repayment every month, for a fixed number of months, and your loan is closed. Once the loan is closed, your gold is returned back to you. This is a stress free repayment method. You just activate an ECS or NACH mandate on your bank account for monthly EMI debit. The EMI is paid on time and you don’t incur any hefty fines or late payment charges. The loan is paid on time and you are debt free.
The majority of gold loans do not have prepayment penalties or a minimum lock-in term, so you can prepay them whenever you like. Short payback terms apply to gold loans, with the majority having terms of little more than five years and an average term of no more than one year.
Why Are Gold Loans Popular These Days?
The Corona pandemic caused severe economic distress to many. Gold loan was the easiest and safest loan option for many of them. With nominal interest rates and flexible repayment options, gold loan is a popular choice for many.
Since your gold is used as security for a gold loan, you are also exempt from submitting a salary certificate. Therefore, you can still apply for this type of loan even if you're unemployed right now or have a bad credit score.
Processing time is incredibly low. Because the banks have your gold as collateral in the event of default, gold loans in India are among the easiest loans to be approved for. You might be able to leave the lender's office with the loan amount in many instances. In person, the loan can be granted in a few hours or a few minutes. Depending on how much gold you are promising, you may be eligible for loans ranging from Rs. 1000 to Rs. 1 crore.
Immediate disbursement of the loan money. After confirming the gold's value and purity, many lenders can promptly appraise your gold and approve the loan. A gold loan application does not need to go through many approval stages, unlike housing or auto loans.
There isn't a lot of documentation required. In contrast to the case of a home loan or personal loan, banks do not require the substantial documentation or protracted decision-making process when you provide your gold as security. Most lenders only require one piece of picture identification, one piece of address verification, photos, and signature verification. Ration cards, voter IDs, driver's licenses, passports, and Aadhaar cards are just a few examples of the ID and residency proof documents.
Gold Loans Repayment Options – FAQs:
1:What are the repayment options available for gold loans in India?
Borrowers get the following repayment options to repay their gold loan –
Pay interest as EMI & principal at the time of maturity
Regular repayments of interest and principle component
Bullet Repayment Option
Standard EMI plan with the interest & principle components
2:What is the average interest rate on gold loans?
Gold loans generally charge around 8-15% interest rate per annum.
3:Is my gold safe when I pledge it for a gold loan?
Yes, when you get your gold loan with a reputed bank or NBFC, they have high safety measures to keep your gold safe.
4:Is there a limit to what I can do with the funds from a gold loan?
No, there is no restriction on how you can use the borrowed money to purchase gold. It is yours to use however you like and for any reason you like. It is comparable to a personal loan in this regard.
5:Can I partially or fully prepay my loan? Is there going to be a fine?
When you want to pay off a gold loan early, typically there are no fines or penalties for doing so. However, it is preferable to inquire about the lender's policies.