Gold loans are a popular way to get credit because they can be paid out quickly, there are no restrictions on how the money can be used, and your credit score doesn’t matter much or at all in the approval process when you go for gold loan apply. But another important thing about gold loans that is often overlooked is that there are more than one ways to pay them back.
Eager to know, let’s find out.
The bullet payment option is one of the most common ways to pay back a gold loan. It lets the borrower pay back both the principal and the interest at the end of the loan period. Most of the time, the lender will charge interest every month. Even though the terms for most gold loans are between 3 months and 3 years, the terms for the “bumper” option are usually up to 1 year. The bullet repayment option is great for people who aren’t sure how much they can pay back during the loan’s term. Since both the interest and the principal are paid back at the end of the rupeek gold loan‘s term, the interest cost would be the highest if you chose the “bullet repayment” option.
Interest-only payments on a monthly basis
With this option, you pay the interest amount every month according to the EMI schedule, but the principal amount is due when the loan is paid off. During the time of the gold loan, the borrower only has to pay back the interest. This option is good for people who don’t make enough money or don’t have enough cash flow to pay both the interest and the principal.
On the other hand, if the borrower doesn’t pay back the principal every month, he or she will have to pay more in interest. So, borrowers who choose this option for paying back their loans should ask their lenders about the option and cost, if any, of paying back the loan’s principal during the loan term. Doing so would cut down on the cost of interest and make it easier to pay back the whole principal in one lump sum at the end of the gold loan’s term.
Upfront interest payment
In this way of paying back the loan, the interest is paid all at once when the loan is given. The principal part of the rupeek gold loan must be paid back at the end of the loan’s term. Most of the time, the interest is taken out of the loan amount when the loan is paid out. The upfront interest payment option is good for people who can’t make monthly payments during the loan term but want something cheaper than the bullet payment option.
EMI Payments are made every month
The regular EMI payment option is usually available for gold loans, just like it is for most other loans. Since both the principal and interest must be paid back over the life of the loan in the form of EMI, the total interest cost is lower than with other ways to pay back the loan. Regular EMI works best for people who know how much money they will be getting and have a stable cash flow.
Conclusion: Which method of payment should you choose?
When you go for a gold loan apply, borrowers should choose the repayment option based on how much cash they expect to come in and how much money they expect to make during the loan’s term. For example, since the ongoing pandemic has hurt many people’s incomes, the non-regular EMI repayment options, such as the bullet repayment option, can be good for those with limited cash flow. Those who know they will have a steady income should choose the regular EMI option, which has the lowest interest rate of all the ways to pay back a gold loan.
Now that you know about repayment options, it’s prudent not to ignore these other aspects when taking a rupeek gold loan.
Amount of loan
According to the RBI’s rules, banks and NBFCs can only lend up to 75 percent of the value of gold when giving out gold loans. At the moment, most lenders offer gold loans for amounts between Rs 1,000 crore and Rs 10 crore. So keep this in mind when thinking of a gold loan apply.
Rates of interest
The interest rate you get for a gold loan apply is based on how risky the lender thinks the loan is and other factors like the LTV ratio, loan term, loan amount, etc. For example, a higher LTV ratio means that the lender is taking on more risk, so they usually charge a higher interest rate to make up for the higher risk. Interest rates on gold loans usually range from 7 percent per year (p.a.) to 29 percent per year (p.a.).
Gold loans are short-term loans that usually last between 3 and 5 years. When choosing the length of your loan, you should think about how much you can afford to pay back and choose the length with an EMI that you can afford. Use an online EMI calculator to get a good idea of what your monthly payment will be based on the loan amount, interest rate, and length of time you choose. The EMI amount goes down as the loan term goes up, and vice versa.
Fees for processing
Processing fees for gold loans can be either a flat fee or a certain percentage of the loan amount. Some lenders may charge a flat fee as low as Rs 10; the percentage can go up to 2% of the loan amount. Before you go ahead with a gold loan apply, remember to take into account the processing fee that the lender may charge. This fee, especially for large loans, can make a big difference in the total cost of the loan.
Gold’s purity and valuation
How much of a rupeek gold loan you can get depends on how pure and what kind of gold you put up as collateral. Most of the time, different kinds of gold ornaments, like jewellery, coins, etc., can be used as collateral, but this would depend on the lender. Also, lenders assess and evaluate the gold that has been pledged either in-house or through third-party evaluators, who decide the loan amount based on the assessed value and purity of the gold that has been pledged.
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