Applying for a loan is a long-term commitment. Most of the time, the reason behind it is inevitable. Like, if there is a family wedding coming up or suddenly you are faced with a medical emergency. There are myriad options available for loans, so you need to be a smart borrower and understand your requirements to choose the best option. Out of all, a gold loan is a type of secure loan that you can apply for at the time of cash crunch. Since it has a lower interest rate and is lenient in terms of eligibility, instant approval is possible. If you are 18 years of age and have gold articles sitting idle in your locker, you can consider yourself eligible for this kind of loan. Most of the financial institutions have made it possible to apply gold loan online as well as offline. Just bring your gold assets along with the required identity proof-related documents to the lender. Then the lender will conduct a purity test of your assets and their market value to calculate the sanctionable loan amount. Once they are satisfied, your loan gets disbursed.
The moment you get approval for the loan, your tenure period starts. There are four ways that you can pay off your loan amount along with the gold loan interest rate. The repayment procedure varies from one financial institution to the other and they give you the freedom to choose. Here is a detailed overview of the four repayment procedures that you can follow to ace your gold loan settlement-
Regular EMIs
Depending on the loan amount and the tenure you have chosen, you can discuss with your lender to generate an EMI schedule at your convenience. Through the EMIs, you can pay off the interest amount monthly while the principal loan amount must be paid in total on maturity. The EMI period starts from the month of the loan disbursal. It also helps at the time of loan foreclosure. If you are a salaried individual with monthly cash inflows, it is the best option to choose. With this type of repayment through the term progression, your interest liability reduces.
Periodic interests
For this type of repayment facility, the interest and the principal amount gets separated. You are supposed to repay only the interest as calculated in EMIs and the principal during the maturity of the tenure. This option helps the borrower to be free from paying the liability of a lump sum amount at a time, as you can pay the interest when it is due.
Monthly interest in overdrafts
Some banks propose the overdraft facility to be availed by the borrower against the pledged gold. It is the same as using a credit card. You can use this amount to spend freely within the credit limit. The interest will apply to the amount that has been utilised only. Through this overdraft, you can avail of transaction facilities through your savings account too. In addition, you can access cash through your debit or ATM card. The repayment option for an overdraft facility is a lump sum amount, but at the same time, you have the independence to close it anytime.
Bullet schemes
For a bullet repayment scheme, you are supposed to pay the principal and the interest amount together at the end of the tenure. If you opt for this method, you do not need to bother yourself with paying the EMIs, or partial repayments. In a single shot, you can pay the whole amount and get back your pledged asset.
Whether you apply gold loan online or offline, you can discuss it with your lender and choose the repayment procedure. Some banks offer prepayment facilities where you can pay off the loan amount even before maturity. Once you clear off the outstanding principal loan amount along with the updated interest, your gold loan account gets closed. You can get back your asset and use it again for loan purposes in the future.
If you feel that you will not be able to repay the loan on time, you can always ask for an extension of tenure from your lender. But if you miss the loan repayment dates after several reminders, you will be faced with some drastic repercussions. First of all, the lender can impose extra penalties ranging from 1% to 7%, not related to the gold loan rate. Your pledged asset can be auctioned off to recover the principal of the loan. Third, they can even take legal measures to recover their dues. And finally, the inability to repay the loan amount will impact your credit score, which might intervene negatively if you want to take loans in the future. So, it is crucial to understand the terms and conditions when you are applying for a loan.