During financial crises, people frequently seek extra fund sources such as secured and unsecured loans. In this regard, gold loans are a feasible secured credit option that enables people to meet immediate financial needs by pledging already-owned gold valuables.
Read on to find out about key strategies for making gold loan repayments more manageable at the lowest gold loan interest rates.
What are some simple ways to repay a gold loan?
Here are 6 simple ways borrowers can repay their gold loans:
- Pay interest initially and principal at tenure’s end
This option allows consumers to repay the interest component of their gold loan through a monthly EMI plan, excluding the principal amount. Borrowers can pay the principal at the culmination of the repayment tenure for their gold loan.
- Gold loan bullet repayment option
This comprises both the principal and the interest. Individuals using the bullet repayment option can thus choose to repay the whole amount of interest and principal when their repayment tenure concludes rather than paying EMIs on schedule.
The term gold loan ‘bullet repayment’ means the practice of paying the whole repayable quantum in a single payment, when the repayment tenure expires.
- Refrain from over-borrowing
It is critical to apply for the exact necessary loan amount. Borrowing too much might become problematic later. The extra loan amount will be subject to interest charges.
To avoid paying higher interest costs, applicants should always estimate the needed amount. Remember that the lesser the loan amount, the lower the interest rate. Ergo, even if consumers are approved for a large loan, adhering to their requirements is critical.
Borrowers may use an online gold loan calculator to estimate how much money they can borrow by pledging their ornaments. It also aids in comparing loan offers and settling on the lowest gold loan interest rates.
- Make partial payments
Several gold loans provide client-specific repayment alternatives, allowing applicants to settle their loan’s principal and interest amounts at their convenience. This means that gold loan applicants are not compelled to adhere to a pre-set EMI schedule. Consumers might also choose to make partial payments on their interest and principal.
- Make pre-payments to foreclose loan
Borrowers may make prepayments on their gold loans to reduce their overall interest. This is an effective method for foreclosing the loan before the repayment tenure is officially over. While some lenders impose a foreclosure charge of 0.5-2% of the loan quantum, some do not levy additional pre-payment or foreclosure penalties if consumers pay at least 3 EMIs.
- Standard EMI repayment schedule
The conventional gold loan EMI repayment plan is designed for salaried individuals with consistent monthly revenues. Interest and principal are both included in payable EMIs.
What are the consequences of defaulting on a gold loan?
Here are the 5 consequences of defaulting on a gold loan:
- Late payment penalties
Lenders impose additional penalties and interest rates in addition to the current interest rate. Late payment penalties and charges normally range from 1-7% each year.
- Reduced credit score
Continued failure to return a gold loan, like any other credit choice, results in a considerable drop in one’s credit score. This can harm a person’s credit history and track record, causing them to lose creditworthiness.
Lenders tend to give borrowers occasional reminders concerning approaching due dates or skipped repayments via SMS, emails, or calls during the early default stage.
- Legal action
Lenders send legal letters and may take additional legal action against individuals who fail for more than 3 months.
- Auction off gold
When financial institutions have exhausted all other attempts at reclaiming the loan amount, their final alternative is to label pledged gold valuables as non-performing assets and thereby, sell borrowers’ pledged gold jewellery at public auctions.
Consumers can acquire instant credit against pledged gold if they plan wisely before applying for a gold loan. Individuals that understand how to effortlessly repay gold loans can benefit from these secured credit solutions and avail of the lowest gold loan interest rates.