The Coronavirus broke the backbone of the middle and the lower class. People lost their jobs, had their salaries curtailed and stalled for months, and gradually had no savings left.
As always, the last resort they had was to loan their jewellery and get some cash to keep themselves from starving. In a tryst to ease the situation, RBI also announced some amendments to the gold loan guidelines. The most prominent one being allowing lenders to sanction up to 90% of the gold value (up from 75% before).
If you are one of those who availed gold loans during the pandemic, it inadvertently means that you are looking for ways to repay them. Should you opt for pre-closure of gold loan, or is waiting for maturity a better option?
This article discusses gold loan repayment and what can happen if you skip it.
A gold loan is a secured loan against your jewellery and other gold ornaments. When you avail it, you have to pledge your valuables as collateral with the lender. The lender forwards you an amount equal to up to 75% of the gold value.
Gold loan repayment means repaying the loan amount along with all the interest due and any other charges levied. You can choose to either pay it on maturity or opt for foreclosure, i.e. pre-closure of a gold loan.
A gold loan is a secured loan. There can be severe repercussions if you miss repaying the loan for a long time. Here is what can happen if you repay your gold loan timely –
The lender can levy severe penalties depending on the dues from the due date of the loan repayment. The rate charged ranges between 1% and 7% and is not related to the regular gold loan rate.
If you are continually missing repayment, your bank will send you regular reminders in the form of messages/ calls/ emails/ letters. These would remind you of the amount due and the repercussions of not paying at all.
If you ignore these reminders or are somehow unable to clear your dues, the last resort for the lender is to auction your collateral to cover his dues. He has the right to sell or otherwise hold a public auction. He will inform the borrower about the same and the arrangement costs involved in the process.
If the sale proceeds exceed the due amount, the bank will transfer the same to the borrower’s account within 30 days of the auction. If the same is lower, banks can undertake legal proceedings to recover their dues.
A hit on your credit score
When you avail of a gold loan, it has nothing to do with your credit score, but non-payment has a significant impact. The lender will inform the credit bureaus of such a scenario, and they will notify all the lenders about such an occurrence. It will result in you not getting any loans, or even if you do, the interest rate would be higher than usual.
Unlike most other loan types, you have a plethora of repayment options to choose from while opting for a gold loan. Here are four different ways in which you can repay your gold loan -
Paying periodic interest
In this arrangement, you keep the principal and the interest part of the loan separate. You only repay the interest in equated EMIs and opt for paying the gold loan principal on maturity.
It is suitable for those unwilling to increase the lump sum liability and want to keep repaying their interest dues as they become due. But it is imperative to understand that partial principal repayment during the tenure reduces your burden at the end of the gold loan term. If you are opting for payment before due dates, you must dive deep into the gold loan pre-closure policy of the lender.
Opting for periodic EMIs
It is what most gold loan borrowers prefer. Here, he starts repaying the loan from the month following the month of disbursement. It is the most viable option for salaried individuals with monthly inflows. It also helps you in reducing your interest liability as the term progresses, and loan foreclosure becomes easier.
In a bullet repayment arrangement, you are not opting for foreclosure of a gold loan, but you pay the principal along with interest on the date of maturity. The option is feasible for short-term gold loans for up to one year.
For example, you took a gold loan of ₹ 10 lakh for 12 months at 10% interest and opted for bullet repayment. So you will not bear any interest during the loan period. But on the date of maturity, you will have to pay the principal, i.e., ₹ 10 lakh, along with interest at 10% for 12 months, i.e. ₹ 1 lakh. SO your total liability becomes ₹ 11 lakhs.
In this arrangement, you will make partial repayment to your lender during the tenure of the loan. Depending on the lender, you can opt for partial or complete payments of both the interest and principal part. These override the previously accepted loan terms and helps borrowers in pre-closure of gold loan conveniently.
There can be times when you find the interest overbearing or have a hefty influx to help you with the foreclosure of gold loan. In such cases, you can request the lender for loan foreclosure. While most banks and other lenders would charge up to 2% of the amount sanctioned for pre-closure of gold loan, we, at Shriram City Union Finance, do not charge our customers a penny for it.
Gold loan is preferable because of the minimal documentation and the ease of access that it offers. But it is imperative for the borrowers to choose a repayment structure that suits their needs and won’t feel like a burden. For example, salaried people should opt for EMI repayment, whereas those with a laggy credit cycle should go for bullet repayment.
Irrespective of the option you choose, we believe pre-closure of gold loans should be a breeze. It is why Shriram City Union Finance does not charge interest on gold loan foreclosure. Not only that, but we also offer gold loans at a minimum processing fee and minimum documentation. You can opt for a loan tenure of up to 36 months and offer flexible monthly installments for added convenience.
So what is keeping you from getting a gold loan with Shriram City Union Finance? Click here to access our gold loan product page and avail it today