A gold loan is a secured loan provided by banks and non-banking financial companies to salaried and self-employed individuals. It requires the borrower to pledge their gold items as collateral, and the gold can be in the form of jewellery, ornaments, EFTs, coins, etc. It is one of the most preferred ways to manage your finances when you do not have other means. The loan amount is determined based on the value of the gold.
Compared to other loans, the interest rates are low and affordable. With affordable rates and flexible repayment tenure, making timely repayments is easy and convenient. However, getting a lower interest rate depends on factors such as income, credit score, loan tenure, and loan amount. So, before applying for a loan, check your affordability through a gold loan EMI calculator.
Top features and benefits of a gold loan
- Quick processing
Since you are pledging your physical gold as collateral, lenders provide such loans without any hesitation. Besides, the minimum documentation involved also makes it easy and quick to get a loan. Generally, lenders offer to disburse the loan within just a few hours.
- Pay interest only feature
The best part about loan loans is that they often come with a facility that allows borrowers to only pay the interest amount while making repayments. You can pay the principal amount at the end of the loan tenure or during the closure of loan formalities.
- Lower interest rate
Compared to unsecured loans in the market, gold loans come with lower interest rates. Depending on factors, such as your income, credit score, loan amount, and loan tenure, you can secure an interest rate as low as 12%. It would be wise to a gold loan EMI calculator to determine an interest rate based on your affordability.
- No processing fees
Banks and non-banking financial companies in India do not charge any processing fees to issue a gold loan. It is because of the collateral provided by the borrowers.
- Minimal foreclosure charges
Another benefit of getting a gold loan is that you will not have to bear foreclosure charges if you plan to prepay your loan. However, some lenders charge up to 1% as prepayment charges.
- No impact of poor credit score
Unlike other loans, you do not necessarily have to have an excellent credit score to get a gold loan. Since your gold jewelry is used as collateral, you can get a loan based on your needs. However, if you wish to secure a lower interest rate, your lender may ask for a healthy credit score.
Different options to repay your gold loan
As gold loans are easy to process, lenders have come with different types of gold loans based on how they are repaid.
- Pay interest as EMI and loan amount later
In this type of gold loan, your lender allows you to repay the interest amount as per the EMI schedule. However, you will need to repay the principal loan in full at the end of the loan tenure, usually at the end of maturity. It works almost for everyone as you are liable to pay only the interest through the loan tenure. This way, you can worry about the principal amount later.
- Partial payments
In this option, you do not need to conform to the EMI schedule in your gold loan repayment. You can make partial payments of the interest and loan amount as and when you want. It is a customer-centric approach. It allows borrowers to make partial or even complete payments of interest and principal loan amount regardless of the pre-set EMI schedule. If you wish to save money on the interest payable, it is advisable to repay the principal amount initially.
- Bullet repayment
It is another option you can opt for based on your affordability. It enables you to repay the entire loan amount and interest amount at the end of the loan tenure. It means that you do not have to worry about repaying the loan amount and interest rate during the loan tenure. Just pay everything you owe at the time of maturity.
Service EMIs are not mandatory in this type of gold loan. You will need to pay the entire amount, including the principal and interest amount in one shot at the end, hence the term bullet repayment.
- Regular EMI option
This type of gold loan best serves salaried individuals who have cash inflows to their bank accounts monthly. You will need to repay a portion of the principal amount and interest every month. Before applying for such a gold loan, make sure to use your lender’s gold loan EMI calculator to figure out an amount based on your monthly budget.