Ways To Repay Your Gold Loan

In India, gold holds a deep sense of personal possession. People opting for gold loans pledge their gold assets for a shorter tenure. They frequently use family heirlooms made of gold or ornamental gold to alleviate any financial crunch. Banks treat the pledged gold as collateral until the loan balance is fully repaid. This article highlights the various options available to repay the gold loan.

Options For Paying Back The Gold Loans

Secured loans offer diverse options for clearing the loan amount. When it comes to gold loans, you have two options for repayment: foreclosure or the full amount at tenure end. Here are the ways to repay gold loans.

1. EMI Including Interest Now And Pay Principal Later System

This method allows the borrower to pay the principal amount at the end of the tenure. The interest needs to be paid as per the EMI schedule. The bank sets the EMI schedule based on the interest rate on the asset pledged. Borrowers can repay at any time during the tenure.

2. Partial Payment System

In this method, the borrower has the option not to follow the EMI schedule, which distinguishes it from the loan system. They can make partial payments of lumpsum amounts. It gives financial freedom to the person repaying the loan. Interestingly, if the principal amount is paid at the earliest, banks or NBFCs relax the interest rate. It satisfies an immediate need for money while allowing for financial planning.

3. Bullet Payment System

Unlike the partial system, the bullet method allows the borrower to repay the amount in one shot. In this method, the borrower is liable to pay the interest and principal amount after the tenure. The interest and principal are calculated at the same interest rate as in the partial and normal loan systems. Overall, it offers extra time for the borrower to pay off the debt.

4. Regular EMI System

The bank or NBFC determines the equated monthly installment (EMI) under the conventional system using the interest rate and the pledged gold. It is most appropriate for salaried individuals. The EMI system is preferred over all the other repayment options.

After repaying the loan completely at the end of the term, the gold loan is closed. Later, financial institutions release the pledged gold to the borrower. Although, in situations where the borrower defaults on the loan repayment, the lender sends the pledged item for auction. If the auction generates more money than the loan's total amount, the borrower gets the extra money. They may pursue legal action if the auction proceeds are less than the loan amount.

FAQs

Q1. Is it possible to pay off gold loans early?
Ans. Yes, it is possible to repay the gold loans early. Most banks and NBFC’s gold loan offerings don't have a lock-in period or prepaid penalty.

Q2. What happens if the gold loan is not repaid?
Ans. The bank auctions the pledged gold if the borrower defaults on the loan. The pledged gold is treated as collateral and used to recover the loan balance.