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Gold loans payments

Learn how gold loan repayments work and what are the different options available.

Gold loan lenders typically offer various gold loan repayment schemes designed for different borrower profiles, and some might cost more than the rest.

Before taking up a gold loan, make sure you’re aware of the various repayment methods available and choose one that’s best suited for you.

How do gold loan repayments work?

Unlike most loan types, borrowers aren’t limited to Equated Monthly Instalments (EMIs) for gold loan repayments. Here are four repayment options that are typically offered by lenders:

1. Pay off interest in EMIs and the principal at loan maturity

This repayment option enables you to pay off only the interest component of the loan, as per the EMI schedule. The principal amount which you’ve taken as a loan will then be repaid as a lump sum amount at the end of the loan tenure.

How it works

Let’s assume that you availed a gold loan of Rs 5 lakh with a 2-year tenure and an interest rate of 10% p.a. During the loan tenure, you’ll pay a monthly interest of Rs 4,167. Over two years, you’d have paid a total interest of Rs 100,000. Upon loan maturity, you’ll only need to repay the principal amount of Rs 5 lakh.

Such an arrangement works for most borrowers since they don’t have to worry about the bulk of the repayment, which is the principal amount, throughout the loan tenure.

2. Make flexible, partial payments on both interest and principal

A customer-centric arrangement that allows you to make partial (or complete) payments of both interest and principal amounts whenever you deem fit, without having to adhere to a fixed EMI schedule. This loan repayment option is most suited for those with stable monthly income and/or income certainty.

How it works

For this arrangement, the total interest pay-out is usually computed daily based on the outstanding loan amount. This means that if you repay as much of your principal amount as soon as possible, the serviceable interest you’d need to pay will reduce significantly. Likewise, if you opt not to service the principal component of your loan regularly, you may end up paying higher interest than other repayment options.

3. Bullet repayment

The bullet repayment method allows you to repay the entire loan amount upon loan maturity. This means that you can skip the hassle of servicing EMIs and simply repay the principal amount and the interest charged on it in a single lump sum when the loan term ends.

Do note that the Bullet repayment scheme is not a balance reducing loan, which may cost more than other repayment types in interest. It is also typically available for short-term loans only, such as tenures that range between six months to a year.

How it works

Let’s assume that you have a gold loan of Rs 5 lakh for a six-month tenure at 10% p.a. on the bullet repayment scheme. You’ll not be required to service the loan during the entire tenure. But upon loan maturity, you’ll need to repay Rs 5.5 lakh, which includes Rs 50,000 as interest and Rs 5 lakh principal amount.s

4. EMIs comprising of the principal amount and interest rate

With this repayment option, you’d pay a part of the principal amount and the interest component in equated monthly instalments. It’s a simple scheme created for salaried borrowers or those receiving a monthly cash inflow that’s sufficient to cover the EMIs.

How it works

Assuming that you have a gold loan of Rs 5 lakh for a one-year tenure at 10% p.a., you’d need to repay a total of Rs 5.5 lakh (including interest) at the end of the loan. When divided equally, you’d have to pay 12 instalments at Rs. 45,834 each.

How to buy gold on EMI with a credit card

While you can’t get a gold loan on EMI with credit card, many banks and NBFCs allow customers to buy gold jewellery with a credit card and repay it via monthly instalments.

How does EMI schemes on credit card works

EMIs come in handy when you wish to make a purchase that you don’t necessarily have the funds for at the moment.

For example, you’d like to buy a piece of gold jewellery that cost Rs 1 lakh but you only have Rs 3 lakh on hand. To avoid exhausting a huge chunk of your savings on this big-ticket purchase, you can choose to pay with a credit card and convert the expense into equated monthly instalments (EMIs).

This essentially means that you have converted the purchase into a loan that you’d repay via EMIs over a selected tenure.

What to consider before buying gold on instalments::

  • The total amount must be within your overall credit limit. The purchases you make on credit must not exceed the card’s predefined credit limit. For example, if your overall credit limit is Rs. 1 lakh and you’ve already made a purchase of Rs. 20,000 on a tablet, your remaining credit limit will be Rs. 80,000.
  • Interest rate. This interest rate imposed varies from one card provider to another and may be determined by factors such as your credit score, loan amount, loan tenure and job profile.
  • Processing fee. While some banks or credit card issuers don’t charge any processing fees, some may levy an upfront loan processing fee up to 3% of the amount of your bill.
  • Loan tenure. Banks or card issuers typically allow the bill conversion to EMIs from 6 months to 2 years. Do note that the longer the loan tenure, the more interest you’d need to pay.

Can I repay a gold loan online?

Gone are the days when paying off loan instalments is a chore. Be it visiting a branch in-person to make cash payments, or wait for days on end for your cheque to be processed, you’d no longer have to endure tedious processes to pay off their loan EMIs.

With technological advances, most banks and NBFCs now offer online portals for borrowers to settle their outstanding payments digitally at no additional cost. As long as you have access to the Internet, you’d be able to make speedy repayments anytime at your convenience.

Acceptable payment modes are typically direct bank transfer and debit card payments. Most lenders do not accept repayments with a credit card.

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