The gold loan amount given by the bank is according to the gold loan per gram. There are a lot of ways to repay the loan amount taken from a gold loan. Banks give a flexible option to the customers, so they won't face any problem while repaying the amount.
The four main options are mentioned below:-
1. EMI:- EMI or Equated Monthly Installments is the most common repayment option for a gold loan. You'll have to pay a small portion of the principal and the monthly interest at a scheduled date in this option. The customer can choose the date of their wish, so if they want to pay the EMI at the last or the first of the month, they're flexible in choosing accordingly. They have to keep paying the EMI until the whole loan amount is paid off. But you'll have to pay the instalments every month, and if you miss even a single instalment, then you'll have to pay certain charges, and it will also affect your credit score.
2. Interest first, principal later:- In this option bank gives you the flexibility to pay the interest every month as EMI(Equated Monthly Installment) and then pay the loan amount/principal amount at the end of the loan tenure. You'll have to pay the interest every month on a scheduled date.
3. Partial Payment:- As the name suggests here, you have to make partial payments of the interest rate and the principal amount. Sticking to EMI is not the only option you can opt for. There are a lot of repayment options. In this option, you can pay half interest and the principal amount at the start of tenure and the other half at the tenure.
4. Bullet Payment:- In this option, you have the flexibility to pay both the principal amount and the EMI at the end of the loan tenure. Yes, that may sound absurd, but it's true. You can pay the entire amount at the end and take your gold back to your home. You don't have to stick to the EMI option for this one, either. But you'll have to pay the entire amount at one shot, so you'll have to be sure that you're prepared with the whole money at the end of the loan tenure.
There are different customers in this world, and they all have different budget and payment structure. So banks (like SBI, Axis and Indian Bank gold loan) have designed different repayment options keeping that in mind. But there is one more option that you can choose when you're applying for a gold loan. It is called prepayment.
What is a prepayment of a loan?
Prepayment is the amount you pay before your loan repayment starts. You can see this as a down payment amount. Borrowers have the option to pay the prepayment loan in parts of in a full go. The main benefit of the prepayment is that you have saved a considerable amount that you could've paid as interest. Once you've done the prepayment, then you'll have to pay less loan amount, so the interest rate on that will be relatively less. So you save the interest on your prepayment amount.
Benefits of prepayment
There are a lot of benefits of prepayment, but some of them are mentioned below:-
a. Loan Amount:- The amount you'll pay will cover the principal amount. So the amount will go towards the loan amount and not the interest. So by doing this, you can decrease your loan amount. Example: If you already have INR 50,000, you need INR 1,00,000 to apply for a gold loan and pay INR 50,000 as a prepayment of the loan, so now your loan amount will be INR 50,000 and not INR 1,00,000.
b. Consolidation:- Once your loan amount has decreased, you can quickly pay the remaining amount in instalments.
Conclusion:-
Prepayment helps you save a lot of money. And will decrease the burden of the loan amount from your shoulders. So you quickly pay the remaining loan amount at a low-interest rate.