Gold loans allow convenient repayment options. Many borrowers opt to pay only the interest component regularly and repay the principal at the end of the tenure. However, for various reasons, some borrowers may want to foreclose or prepay the gold loan earlier than the tenure period.
This blog post will discuss the key aspects of gold loan prepayment or foreclosure and explain the process step-by-step.
What is Prepayment and Foreclosure in Gold Loans?
Borrowers may opt for prepayment or foreclosure for several reasons:
- To avoid paying additional interest charges over the full tenure
- If funds are available earlier than expected to close the loan
- If the borrower no longer needs the loan or needs a reduced credit limit
- To redeem pledged gold ornaments earlier
But how do they differ from each other? Let’s take a look at it in the next section.
How is Prepayment Different from Foreclosure on Gold Loan?
Step-by-Step Process to Prepay or Foreclose Your Gold Loan
Follow these steps if you wish to make partial or full gold loan prepayment before the completion of the tenure:
- Review your loan agreement to check the outstanding principal amount, applicable interest rate, tenure, and any clauses related to part prepayment or foreclosure.
- Contact your gold loan provider to inform them about your decision to prepay/foreclose and determine the amount required for part prepayment.
- Get the financial institution’s confirmation on the prepayment or foreclosure amount and account details so you can remit the amount in writing.
- Visit the branch and submit the necessary documents such as the loan slip, KYC details, as specified by the lending company.
- Remit the prepayment/full payment amount through NEFT/RTGS, cheque or demand draft to the loan provider’s specified account.
- Collect acknowledgement receipt from the financial institution as proof of prepayment/full payment.
- Your gold loan provider will adjust the part payment in your loan account and issue a revised repayment schedule with a reduced principal amount and EMIs.
- In case of gold loan foreclosure, collect a No Dues Certificate from the loan provider once the foreclosure is processed and the loan account is closed.
- Visit the branch with original pawn receipts and collect the complete or a portion of your pledged gold as per the amount prepaid.
- Continue paying regular EMIs as per the new repayment schedule until loan maturity. Settle remaining dues at the end of tenure and redeem balance gold jewellery.
- In the case of foreclosure, keep copies of the foreclosure receipt and No Dues Certificate for future reference. Your gold loan foreclosure is now complete.
Key Considerations Before Prepaying or Foreclosing
Before you prepay or get foreclosed, here are some key things to reflect on:
- Check if any prepayment or foreclosure charges are applicable and factor that into the total amount to be paid.
- Foreclosure may not be allowed if there are delays in EMI payments or defaults.
- Time the prepayment or foreclosure properly if expecting funds to avoid paying additional interest.
- Get the part-payment or foreclosure request acknowledged by the loan provider in writing before remitting the amount.
- Avoid further interest charges by paying the principal and all dues immediately.
- If facing financial hardship, check if the financial institution offers loan restructuring instead of foreclosure.
Conclusion
Prepaying or foreclosing your gold loan enables you to close the loan earlier than the tenure period, save on interest costs and redeem your pledged gold jewellery.
Always review your loan terms to check any prepayment or foreclosure charges applicable. Contact your loan provider to get written confirmation of the foreclosure amount and remit the full amount promptly. Complete all documentation carefully for a smooth foreclosure process.
FAQs
1. What charges do I need to pay if I want to prepay?
Most financial institutions levy a nominal processing fee plus a prepayment penalty of 2-5% of outstanding principal when you opt for gold loan prepayment. For instance, if your outstanding amount is Rs.2 lakhs and the loan provider charges a 3% prepay penalty, you pay an additional ₹6,000 to close your loan.
2. Is foreclosure better than prepaying a gold loan?
Foreclosure is better if you want to close the loan immediately and redeem all your pledged gold. Prepayment allows partial redemption of jewellery.
3. Can I foreclose my gold loan before 6 months?
Top lending companies allow foreclosure after a minimum of 3-6 months from loan disbursal. Check your loan agreement for details.
4. Can I avail a new gold loan if I have made a foreclosure recently?
Once the previous loan is foreclosed fully, you can avail a new loan against the same gold jewellery.
5. How is interest calculated if I make part prepayment?
For the prepaid amount, interest will stop accruing from the date of payment. The remaining interest is calculated on the outstanding principal.