When you take any loan, you have to repay it as per the agreed terms. The same applies to gold loan schemes or pledged jewel loans too. When you borrow against gold, you have to repay the borrowed amount within the stipulated tenure as specified in your loan agreement.
Loans against gold offer a lot of convenience as there are multiple repayment options in gold loan schemes; the gold loan tenure is flexible too. But do you know about the repayment tenure for the gold loan scheme, or what are the repayment options available? Read on to find out the details.
A Brief About Gold Loan Schemes
Before we discuss gold loan tenure and the repayment options in gold loan schemes, let us get an overview of them. Gold loan schemes are the simplest and fastest ways to access funds in case of an emergency. Almost all banks and non-banking financial companies (NBFCs) offer pledged jewel loans; gold loan interest rates may vary across lenders.
Pledged jewel loans are available against jewellery, coins, or any other form of gold that you wish to pledge. You offer the gold as security, and the lender gives you a loan against it. You approach the lender of your choice with your gold, who will determine its value based on the weight and purity. Gold loan per gram will vary based on the purity of your gold and also the lender’s policies.
A gold loan in India is sanctioned based on the value of the pledged gold and the lender’s policies if you fulfill the eligibility criteria and have the required documents. Most lenders offer a pledged jewel loan of up to 75% of the pledged gold value.
Gold Loan Tenure Explained
A host of lenders offer pledged jewel loans. Depending on the lender, the payment tenure may vary from 3 to 36 months. Gold loan tenure also depends on the borrower’s requirements. Lenders fix the upper limit for the pledged jewel loan. You are free to choose a loan tenure shorter than the maximum gold loan tenure based on your repayment capacity.
For example, say XYZ Bank offers a pledged jewel loan for a maximum duration of 36 months; your requirement is only for a year as you can repay the loan within 12 months. Then you need to take the gold loan only for a year and not three years. Apply for a loan against gold at Shriram Finance for a tenure ranging from 12 to 36 months.
Lenders offer multiple payment options in pledged jewel loans, thus giving you a lot of flexibility. When you take a loan, choose the gold loan tenure and the flexible payment option in gold loan schemes carefully. A longer gold loan tenure will increase your overall interest burden, but a shorter term could make it difficult for you to repay on time if you are suffering from a cash flow crisis. Each of the repayment options in gold loan schemes has its utility.
Repayment Options in Gold Loan Schemes
Lenders offer different methods to repay your loan against gold. You can choose a flexible payment option in pledged jewel loan based on your requirements. The repayment options available for a gold loan scheme are as follows:
Repay interest in installments
If you choose to repay interest in installments, then you repay only the interest part of the loan in equated monthly installments, as per the repayment schedule. You repay the principal at the end of the gold loan tenure. As you have to pay only the interest portion, this option works best for those who do not have sufficient cash flow to service both the interest and principal repayment every month. Servicing only the interest amount every month could result in accrual of higher interest cost on the principal.
You should check with the borrower to repay the principal during the gold loan tenure and if it comes with any additional cost. Repaying the principal during the pledged jewel loan term can help reduce the interest cost and the burden of repaying the entire principal at the end of the gold loan scheme term.
Bullet repayment is the most common flexible payment option in pledged jewel loans. You can repay the principal and the interest on the loan at the end of the gold loan tenure. Lenders charge interest for the loan against gold monthly, but it becomes due for repayment with the principal amount at the end of the gold loan tenure.
You do not pay anything during the loan term; at the end of the gold loan tenure, you repay the due amount and get your gold back. Most lenders offer pledged jewel loans for up to three years. However, if you choose the bullet repayment method, you can get the loan only for one year at the maximum. Bullet repayment works well if you think you would be unable to repay the principal and the interest during the loan tenure. As you pay both the interest and principal component at the end of the gold loan tenure, the interest cost is higher for this option than other repayment methods.
Repay interest and principal flexibly
Repaying interest and principal as per your convenience is another flexible payment option in pledged jewel loans. When you choose this repayment schedule, you pay based on your financial capability rather than the EMI schedule. You can make complete or partial payments of the interest and principal components depending on your cash flow. Gold loan interest is calculated daily on the outstanding amount.
If you pay the principal initially, then the interest cost gets reduced. This option offers you a lot of flexibility to repay your loan; the gold loan tenure could become shorter if you have sufficient funds and decide to repay the loan early.
Regular Equated Monthly Installments (EMIs)
You can repay the pledged jewel loan with regular EMIs, just like any other loan. When you pay EMIs, you repay both the principal and the interest component of your gold loan monthly.
This method works well if you have regular and fixed cash flows. This is one of the repayment options in gold loans where the overall interest cost is low as repayment of the principal amount starts from the first installment. Gold loan interest is calculated on the outstanding principal. With each monthly installment, the principal amount due reduces, and thereby the overall interest burden also decreases.
You can use the gold loan EMI calculator to calculate your EMI burden. For example, if you take a loan of Rs 2,00,000 for 12 months at 14 per cent, your monthly installment would be Rs. 17,597.
Pay interest upfront
As the term indicates, you pay the interest on the pledged jewel loan upfront when it is disbursed. You repay the principal at the end of the gold loan tenure and get your gold back. The lender deducts the interest component from the loan amount, and you receive the balance amount as a loan. This gold loan scheme repayment option is best suited for borrowers who may find it inconvenient to make monthly payments. The interest cost is high in this option, but it is lower than the bullet repayment method.
Gold loan schemes can offer you a quick solution in a time of emergency. Choose from one of the repayment options in gold loan schemes based on your financial capability. Choose a repayment option that best suits your cash flow situation. Shriram Finance Gold Loans are available at competitive rates and, with flexible repayment options. The processing time is low with minimal documentation required. Research well and be sure about the product features before making a choice.