Gold ornaments are not only a piece of jewellery. They are a form of backup which have the power to rescue you from financially tough times. One of the quickest and easiest ways through which your gold ornaments can help you is if you avail a loan against them. Loans availed by pledging your gold ornaments with a lender are called Gold Loans.
You would have read about or seen a representation of such gold loans in books and films where gold ornaments were handed over as collateral to a moneylender and then he/she gave the borrower the much-needed cash. This traditional way of lending-borrowing gold ornaments have transcended into the modern financial ecology and now gold loans are being provided by all major public and private sector banks and non-banking financial institutions too.
There are other loans, similar to gold loans in the market. These loans fulfil a similar purpose of providing the borrower desired cash without much hassle. They are personal loans and credit card loans. All of, gold, personal and credit card loans have various advantages and disadvantages. However an area where gold loan scores above them is that it is always a secured loan i.e. availed against collateral, in this case, gold ornaments.
Precisely due to this reason it is easy to pay off gold loans since the collateral enables the lenders to grant you the loan at lower interest rates in comparison to the interest rates of personal loans and credit card loans. Gold loan applications are also comparably quickly processed and require minimal documentation. Since gold loans are easier to process and grant, lenders including banks and non-banking financial companies have come up with 4 types of gold loans by altering the way they are repaid. Let’s find out more about them below:-
- Pay Interest as EMI & Principal later: Through this option, you can repay the interest amount as per the EMI schedule of the gold loan however the principal amount borrowed is to be paid, in full, at the time of maturity. Such an arrangement works wonders for most borrowers as throughout the loan tenure one is liable only to pay the interest and not worry about principal repayment.
- Make Partial Payments: Make partial payments of both interest and principal amounts as and when you desire. Conforming to the EMI schedule is not important in this kind of gold loan repayment schedule. Now this is a customer-centric approach for gold loan customers! Partial or even complete payment of both the interest and principal components is allowed irrespective of the pre-set EMI schedule. If you repay your principal initially, then your total interest pay-out, which is usually calculated daily on amount of loan outstanding, is bound to reduce. This way you can save on a lot of serviceable interest.
- Bullet Repayment: In the Bullet Repayment method, you have to repay the entire amount of both the principal and interest amount at the end of the loan’s term. Yes, you heard it right! No need to pay principal and interest during the loan tenure! Just pay the entire amount after your loan is finished. You need not service EMIs in this type of gold loan; just pay the entire due amount at the end of the term in a single shot, hence the term bullet repayment. Moreover, in this repayment mechanism, interest is calculated each month however its payment (along with principal repayment) becomes due only at the end of the term.
- Regular EMI option: Catered towards the salaried class, the regular EMI Gold loan is developed for those who have cash inflows to their bank accounts monthly. Here the EMI amount includes both interest and principal amount pay-outs. Granting this loan is also a quick process since it is going out to salaried applicants.
You can pre-pay most gold loans as and when desired as most of them do not have prepayment penalty or a minimum lock-in period. Gold loans have short repayment tenures, most with tenure of a maximum of 5 years and with an average tenure of 1 year or less.
When you visit the lender to close your gold loan account, you will have to deposit the outstanding loan principal amount with updated interest amount and then the loan account will stand closed. Once the closure of loan account is confirmed, the concerned authority (mostly bank branch manager) will hand back the collateral gold to you and obtain your acknowledgement. And so it will be an end of it, the gold jewellery which not only provided you with much-needed cash at a time of financial urgency will again be at your service, shining with eternal glow and mesmerizing beauty to embrace your ownership