Freddie Harris, Negosentro | In India, gifting gold is not only a tradition but also has a hidden meaning of providing a sort of financial security to your loved ones. It is because gold, or any other form of it, has the power to see you through financially tough times. You can take a loan against your prized gold possessions quickly and very easily. Loans that we can avail by pledging our gold ornaments with a lender are known as Gold Loans.
Since India was known as “Golden Bird” in the ancient times, the tradition of taking gold loans is not new. People of old times also borrowed the much-needed cash against their gold assets from the lenders. Moreover, you might have read in books or seen a portrayal of gold loans in Hindi films where moneylenders were handed over gold ornaments as collateral in exchange for money. The same tradition has transcended into the modern financial system where gold loans are provided by various public and private banks and non-banking financial companies (NBFCs) as well. The reason for the same is the high value of gold, as 10 gm of 24 carat gold rate today is 37,862.
There are various other types of loans similar to gold loan available in the market today, such as personal loans and credit card loans. Even though these loan types provide the same benefits as a Gold Loan, they are not as secured as gold loan because this loan is taken against gold ornaments as collateral.
Additionally, due to the presence of collateral in Gold Loans, they are available at lower interest rates than personal loans or credit card loans. The applications for Gold Loans are processed quickly as they need minimal documentation. In this way, Gold Loans are easier to process and are approved faster.
Lenders, including non-banking financial institutions and banks, have introduced four options to repay Gold Loans. Let us find out more about these options:
- Pay Interest of Loan as EMI and Pay Principal Amount Later: This is a convenient option to repay your Gold Loan wherein, you can pay the interest amount as per the schedule of the EMI and pay the full principal amount at the time of maturity. This arrangement works as a boon for many borrowers as one only has to pay the interest and need not worry about the principal amount throughout the loan tenure.
- Make Partial Repayments: This is one of the customer-centric approaches in which a person who has taken Gold Loan can save a lot on his/her serviceable interest. In this approach, you can make partial payments of both the principal amount and interest amount whenever you desire. The best part of this approach is that you do not have to confirm an EMI schedule. Additionally, you can pay the partial or full amount of both the interest and principal components irrespective of any pre-set EMI schedule. If you repay the principal amount initially, then your total interest pay-out reduces, as it is calculated daily for the outstanding amount of the loan.
- Pay Regular EMI: This option is introduced keeping the salaried-class in mind. Those who get a specific amount of money in their bank accounts regularly can pay regular EMIs. The EMI amount includes both principal and interest amount that has to be paid.
- Bullet Repayments: In this repayment method of the Gold Loan, you have to pay the entire amount of both the interest and the principal amount at the end of the term of the loan. You need not pay the principal or interest every month throughout the loan tenure; instead, you only have to pay the entire loan amount after the tenure of the Gold Loan is finished. There will not be any service EMIs, and all you need to do is pay the whole amount at the end of the term in single bullet shot. However, in this type of Gold Loan repayment, interest is calculated every month and has to be paid (along with the refund of the principal amount) at the end of the term.
You can pre-pay all your Gold Loans when needed as most of the repayment types have no penalty for pre-payments and do not have any minimum lock-in period. Moreover, most Gold Payments have shorter repayment tenures which vary from one year to five years.
When you have to close your Gold Loan account and go to the lender for the same, you will have to pay the outstanding loan’s principal amount with the latest interest amount. Only then, would you be able to close your account. When the closure of your Gold Loan account is confirmed, the concerned authority (generally, the branch manager) hand backs your collateral gold to you and takes your acknowledgement. Thus, it will be an end to your Gold Loan, and the gold ornaments, which helped you avail funds in a situation of emergency, will be with you at your service once again.