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Various banks and non-banking financial companies serve this scheme in exchange for collateral. Further, we will discuss the repayment options and discuss it as well.Though gold loans are easier to process and grant as well, still it might turn into trouble while repayment of the loan.
Here are some tips that are to be kept in mind while repayment of a gold loan:
- Paying only interest monthly- Gold loan repayment comes with options where one can pay the interest monthly as per equated monthly installment (EMI). Further, the principal credit money can be deposited at the end of the scheme, during maturity. This repayment method could prove to be beneficial for borrowers who do not have a stable cash flow or a constant source of income. In such cases paying the minimum monthly interest can save you from excess stress. On the other hand, lower repayment is capable of increasing the interest cost in some cases, thus the borrowers should inquire regarding the option and cost with their lenders (like banks and NBFCs). For example, suppose you have a gold loan transacted of INR 5 lakh any further during the tenure you have to pay around INR 3,125, considering the interest rate to be 7.5%. Like this, you will end up paying an interest of INR 112,500 in a tenure of 3 years.
- Regular monthly EMI- This option of paying a regular monthly EMI is best suitable for the salaried class who have a fixed monthly source of income. This method involves a monthly EMI installment where the borrower has to pay interest as well as a part of the principal amount. Regular installments also help in reducing the interest rate right from the beginning of the loan tenure that reduces the total payment amount as compared to the option of paying monthly interest. For instance, while taking a gold loan worth INR 5 lakh you just have to pay total interest of INR 59,910 in monthly installment during the loan tenure.
- Making partial payments- This method of repayment involves partial payment of the credited gold loan. In such cases, there is no EMI schedule and one can repay the loan in partial amounts or completely whenever he/she has sufficient money. It is quite suitable as the lender allows making partial or even complete payments including the interest rate as well as the principal amount. The total interest is basically calculated on a daily basis on the loan amount that has been credited. Thus if one pays the principal early then the interest rates are reduced and can be paid later.
- Foreclosing gold loan accounts- This option involves repaying of the gold loan before the EMI tenure ends by providing a ransom. This takes place when a person has credited a gold loan for some investment purpose (like for stock market investment) and he earns a huge profit, thereby paying off the loan credit within a short time. Moreover, when you pay off the loan completely in a short time you end up paying less for the interest rate. Some banks do not necessarily charge fees for prepayment but if you avail of an Axis bank gold loan then you might have to pay an extra fee of 0.5% to 2% of the principal amount while foreclosing the account, if only the loan is paid within a period of 3 to 11 months.
- Monthly interest in overdraft accounts- Overdraft facility is provided by financial institutions like State bank of India and DCB Bank against the pledge of a gold asset. In these overdrafts, there are transaction facilities where monthly interest has to be served on the principal amount as per the rate.
