Ways of Repaying a Gold Loan

Gold loans are beneficial for the borrower because they can use an existing asset and the same asset can be pledged as security or collateral multiple times.A gold loan can be availed of by an individual who is above the age of 21 years and owns gold. The occupation of the borrower does not affect their eligibility criteria - a trader, farmer, businessman, salaried employee, self-employed individual, etc., can obtain a gold loan from a bank or the financial institution without any hindrances. The borrower’s creditworthiness too does not play a crucial role in determining their eligibility criteria for a gold loan.

The loan is issued against the borrower’s gold. The gold submitted by the borrower is evaluated by the bank or the financial institution based on its purity, weightage, and market value to determine the gold loan amount. The interest charged on the gold loan amount is generally lower than interest loans on other loans. Banks and financial institutions usually do not charge any processing fee or a prepayment penalty on a gold loan to the borrower. The quick approval and disbursal of gold loans by banks and financial institutions makes it a common and beneficial option for borrowers in emergencies.

A gold loan tenure usually ranges from 12 to 24 months, depending upon the borrower’s financial requirements and repayment ability. The borrower has to repay the loan amount in addition to the interest rate charged on it within the predefined loan tenure to the bank or the financial institution. When the borrower repays the entire loan amount, the gold pledged by them is returned to them. However, if the borrower fails to repay the loan on time, the bank or the financial institution can auction off the enlisted gold to recover their loan amount from the proceedings. Banks and financial institutions provide flexible repayment structures to borrowers.

The loan repayment options provided to the borrower on a gold loan are -

EMI - EMI refers to equated monthly instalments. Under this repayment option, the borrower has to pay a fixed monthly instalment to the bank or the financial institution until the end of the loan term. The EMI is based on the principal amount, interest rate and the loan tenure set. The EMI consists of a part of the principal amount along with the interest rate charged on it. The borrower can use the Gold Loan Calculator which is available on the bank or the financial institution’s website or mobile app. This calculator allows the borrower to know their EMI before applying for a loan. The borrower can enter different combinations of the loan amount and the loan tenure, to figure out a loan combination they can repay without defaulting. This facility is provided free of cost. This repayment option allows the borrower to prepare and manage their expenses in an organized manner because they know the exact amount they have to repay every month.

Advance interest payments - Under this repayment option, the borrower makes an advance payment on the entire interest amount to the bank or the financial institution. The principal amount is repaid at the end of the loan tenure by the borrower.

Interest repayment at regular intervals - Under this repayment option, the borrower repays the interest amount to the bank or the financial institution at regular intervals and the principal amount is repaid at the end of the loan tenure by the borrower.

Bullet payment - Under this repayment option, the borrower repays the entire amount i.e the principal amount including the interest amount to the bank or the financial institution at the end of the loan tenure. This option is beneficial for borrowers who can afford to repay the loan through a lump sum payment.

Banks and financial institutions such as IIFL Gold Loan provide flexible repayment options to borrowers; therefore, the borrower should assess all the options so that they can repay the loan hassle-free and regain ownership of their precious asset.