Ideas for easy gold loan repayment

Individuals often pursue additional capital sources during financial turmoil, such as secured and unsecured loans. Thus, gold loans are a viable secured loan option that allows individuals to address immediate financial requirements by pledging already-owned gold assets. 

Continue reading to learn about key ways for more manageable gold loan repayment.

What are some ideas for easier gold loan repayment?

Here are 5 easy ways borrowers can repay their gold loans:

Repay interest amount initially and principal amount at maturity

This option enables individuals to repay their gold loan’s interest amount through a payable EMI schedule, excluding the principal amount. Borrowers can pay the principal upon the end of their gold loan’s repayment tenure.

Make partial payments

Most gold loan offer consumer-tailored repayment options that enable borrowers to repay their loan’s interest and principal amounts at leisure. This implies that gold loan applicants are not required to be in accordance with the predetermined EMI scheme. In addition, individuals can choose to make partial payments of their interest and principal amount.

Ergo, borrowers can effectively lower their total overall payable interest by opting to initially repay the principal amount and the interest amount afterwards.

Bullet repayment option

Gold loan bullet repayment allow applicants to hold off their loan’s repayment until their repayment tenure ends. This includes both the principal and interest amount. Thus, individuals with the bullet repayment option can choose to repay the entire quantum of interest and principal when their repayment tenure ends instead of paying timely EMIs.

The phrase ‘bullet repayment’ refers to the practice of paying the entire repayable quantum in a single payment when the repayment tenure ends.

Foreclosure by making pre-payments

Individuals have the option to make pre-payments on their gold loans to lower their overall interest. This is an excellent approach to foreclosing the loan before its repayment tenure officially ends. Though some lending institutions levy a foreclosure fee of 0.5-2% of the loan amount, others do not charge any pre-payment or foreclosure charges if borrowers pay at least 3 EMIs.

General EMI repayment scheme

The typical gold loan EMI repayment scheme is intended for salaried people with stable monthly incomes. Payable EMIs include both the interest and principal amount. Borrowers can choose preferred repayment tenures according to their specific financial needs and circumstances.

What are the consequences of defaulting on a gold loan? 

Here are the 5 consequences one might face upon failing to repay a gold loan:

Consistent reminders

During the initial default phase, lenders typically send borrowers periodic reminders regarding approaching due dates or missed payments via text messages, emails, or calls.

Late payment charges and penalties

Lenders charge additional penal charges and interest rates on top of the already existing interest fee. Late payment charges and penalties typically range from 1-7% per annum. However, this percentage may vary depending on the lender.

Decline in credit score

As with any other credit option, continued inability to repay a gold loan leads to a significant decline in one’s credit score. This can damage one’s credit history and track record, leading to a loss of creditworthiness. In turn, this makes availing of loans in the future more challenging.

Legal ramifications

Gold loan applicants can default for up to 3 consecutive months without facing legal ramifications. If individuals default for more than 3 months, lenders send legal notices and may take further legal action against said individuals.

Auction off pledged gold

Once lenders exhaust all ways of recovering the loan quantum, their last resort is to classify pledged gold assets as Non-Performing Assets (NPAs). Thereafter, lenders can auction off borrowers’ pledged gold ornaments at public auctions. However, this is done after notifying borrowers about it.

Planning wisely before opting for a gold loan allows borrowers to gain instant credit against pledged gold jewellery. Knowing how to make gold loan repayment easily enables individuals to take advantage of such secured credit options.

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