Gold loans are a popular form of borrowing since they can be repaid fast, there are no restrictions present on how or when the money (loan amount) can be spent, and when you apply for a gold loan, your credit score plays little or no role in the acceptance process. However, another essential aspect of gold loans that is frequently neglected is that there are other ways to repay them
So let’s find out!
One of the unique features of a gold loan is a bullet payment option. It is one of the most frequent methods for repaying a gold loan. It enables the borrower to repay the principal as well as a bank of India gold loan interest rate at the conclusion of the loan period. Typically, the lender will charge interest each month. Old loans have repayment periods between 3 months and 4 years, and the “bumper” option typically has maturities up to 1 year. An option is ideal for individuals who are unsure of how much they will be able to pay back over the loan’s length. Since both interest and principal are repaid at the conclusion of the loan against gold‘s term, the “bulk payback” choice would incur the maximum interest expense.
Interest-only payments are made each month.
With this option, you pay the monthly interest amount according to the EMI, but the amount of principal gets due only when at the end of tenure. During the term of the loan against gold, you, as a borrower, are only required to make interest payments. This option is beneficial for individuals who do not earn enough or have sufficient liquidity as cash flow in order to pay the interest plus the principal amount.
In contrast, if the borrower does not repay the principal each month, the borrower will have to pay a higher bank of India gold loan interest rate. Therefore, borrowers who select this option for repaying their loans should inquire with their lenders about the possibility and expense, if any, of repaying the loan’s amount of principal during the period of the loan. This would reduce the expense of interest and make it easier to repay the entire amount in one lump sum at the conclusion of the period of the gold loan.
Upfront interest payment
In this method of loan repayment, the interest is paid in full when the loan is issued. The principal portion of the gold loan must be repaid at the conclusion of the loan’s duration. Typically, the bank of India gold loan interest rate is deducted from the loan balance when the loan is repaid. This facility of upfront payment of interest tends to be beneficial for borrowers who are unable to make monthly payments during the length of the loan but who want a cheaper alternative to the bullet payment option.
EMI Payments are made on a monthly basis
The standard EMI payment option is typically available for gold loans, as it is for the vast majority of other loans. Due to the fact that both the principal and interest must be repaid during the repayment tenure of the loan as EMI, the total interest cost is less than it would be with alternative repayment methods. Regular EMIs work well for individuals who are aware of their income and have a regular cash flow.
Which payment method should be selected?
When applying for a gold loan, borrowers should select an apt repayment option based on how much cash they anticipate receiving and how much they anticipate earning during the loan’s period. For instance, since the ongoing pandemic has negatively affected the wages of many individuals, non-regular EMI repayment alternatives, such as the facility of bullet repayment option, can be advantageous for those with limited cash flow.
Now that you are aware of your loan against gold repayment choices, it is prudent not to overlook these other considerations.
According to RBI regulations, banks, as well as NBFCs, are allowed to only lend up to 75% of the gold’s value while providing gold loans. Currently, the majority of institutions give gold loans between Rs 1 billion and Rs 10 billion. Therefore, bear this in mind while applying for a gold loan.
The bank of India gold loan interest rate you receive when you apply for a gold loan is based on the perceived riskiness of the loan by the lender and other variables such as the LTV ratio, loan length, loan amount, etc. A greater LTV ratio, for instance, indicates that the lender is taking on a higher degree of risk. Therefore they often demand a higher interest rate to compensate for the increased risk.
Gold loans are often short-term loans with terms between 3 months and 4 years. When determining the repayment tenure of your gold loan, consider how much you can afford to repay and select a term with an affordable EMI. Utilize an online EMI calculator to estimate your monthly payment based on the amount of loan, applicable or expected interest rate, and loan term. The longer the loan term is, the low the monthly payment is, and vice versa.
Fees for processing the loan
A loan against gold processing costs can be either a flat rate or a proportion or percentage of the gold loan amount. Some lenders may impose a flat fee as low as just a meagre Rs 10; the proportion may reach 2% of the loan amount. Before submitting an application for a gold loan, you must consider the lender’s potential processing cost. This fee, particularly for large loans, can have a substantial impact on the overall cost of the loan.
Gold’s value and purity
The amount of a loan against gold you can obtain is dependent on the purity and type of gold you pledge as collateral. Typically, many types of gold ornaments, such as coins, bars, jewellery etc., can be put forth as collateral, although this depends on the lender. In addition, lenders inspect and evaluate the pledged gold either internally or through third-party assessors, who determine the gold loan amount on the basis of the checked and assessed worth and purity of the pledged gold.