To support an individual’s immediate financial requirements, many lending institutions extend affordable gold loans online. With digitalization, individuals can easily apply for a loan and avail of the said credit by fulfilling simple eligibility parameters.
However, with every borrowing, an individual gets tied to the obligatory repayment structure. In terms of a gold loan, individuals enjoy flexible repayment options.
What are the methods of repaying a gold loan?
According to a report, the gold loan segment in India doubled upto Rs.60,464 crore as of 31st March 2021. This data indicates the demand among individuals to avail high-value credits to support the big-scale expenditure.
To maintain this growth, lending institutions offer multiple repayment options on a gold loan scheme to borrowers. This allows them to evaluate their financial structure and choose a repayment option accordingly.
Some of the options available are –
- Regular EMI payments
This is a standard repayment option that caters to salaried borrowers. This option allows the monthly installment repayment till the end of the tenor. The repayment of interest and principal usually commences from the month following the disbursement of the amount.
Making timely EMI repayment on gold loan online helps facilitate healthy savings for future endeavours. However, individuals need to plan their finances intelligently to maintain this structure. Following this method will gradually improve their CIBIL score and credibility.
- Paying interest periodically and principal at the tenor end
This option involves repaying the interest amount as per the equated monthly instalments. An individual can pay the principal amount on loan maturity. Individuals with an inconsistent cash flow or income can take advantage of this repayment method.
This allows them to manage both principal and interest outgo without straining personal savings.
Technically, a borrower is liable to pay interest outgo within the tenor. However, individuals should know that reducing repayments can lead to accrual of interest.
This can increase the overall borrowing cost and gradually add additional pressure on an individual’s savings. Hence, it is recommended to evaluate the financial security before choosing this option.
- Repaying interest upfront and principal later
In this option, borrowers can choose to repay the interest in advance. They get the privilege to repay the principal amount at once before the tenor ends. However, repaying the entire principal at one go can burden a borrower devoid of financial backup.
For instance, an individual can avail of a gold loan of Rs.10 lakh for three years. The interest rate on the said credit is 6.75%. Thus, over five years, the total gold loan interest will stand at Rs.3,62,014. An individual can pay the interest upfront and repay only the principal amount ie., Rs.10 lakh at maturity.
- Partial payments
Making partial payments of both principal and interest amounts is again a repayment option extended by lenders offering a gold loan online. Individuals can use the lump-sum earnings or annual bonus towards the purpose. This removes the burden of maintaining the EMI schedule. Moreover, individuals who repay the principal initially have a better chance of reducing the total interest pay-out. This is because the calculation will be made on the total outstanding loan.
Individuals can also prepay their gold loan amount to a lender before the tenor ends and close the account. This option is available on all repayment options. Even if individuals opt for a traditional EMI structure or partial payments, they can still pay outstanding amounts.
Apart from these repayments options, many lending institutions like Bajaj Finserv also offers bullet payment mode. This option allows individuals to repay the entire amount that includes principal and interest at the end of the loan tenor.
However, this customized feature is subject to availability and the lending institution’s policies.
Availing of a gold loan online is a lucrative option for individuals needing substantial funding with flexible repayment options. However, these options come with multiple pros and cons, which can disturb an individual’s financial planning. Therefore, it is recommended to read the terms and conditions before choosing the repayment option. This will aid in making an informed borrowing decision.