In India, gold has always been more than just an ornament. Families see it as a valuable asset that can provide financial support during times of need. One of the most popular ways to use this asset is by taking a gold loan. A loan against gold allows you to pledge your gold jewellery or coins with a bank or NBFC and borrow money in return.
While it is easy to avail this type of loan, many people find repayment challenging if not planned properly. Let’s explore the best practices to manage repayment of a gold loan without stress.
Understand the Loan Terms Clearly
The first step to stress-free repayment is to read the loan agreement carefully. When you take a loan against gold, the lender will mention the interest rate, repayment schedule, and penalties for late repayment. Make sure you understand:
1. The exact interest rate charged
Knowing the exact interest rate of gold loan helps you plan repayment better. Even a small difference in rate can significantly affect your overall cost.
2. The tenure of the loan
Understanding the tenure of your gold loan is essential, as it directly impacts your EMI amount.
3. Different repayment options available
Lenders often provide flexible repayment options like regular EMIs, bullet repayments, or interest-only payments.
4. Penalties for late payments
Late payments on a gold loan usually attract penalties and extra interest charges. Carefully checking these terms helps you avoid unnecessary costs.
Choose the Right Repayment Option
Lenders usually offer multiple ways to repay a gold loan. Choosing the right one based on your income flow can reduce financial pressure. Some common methods include:
- EMI (Equated Monthly Instalments) – You pay both principal and interest in fixed monthly instalments. Best for salaried individuals.
- Bullet Repayment – You pay only interest during the tenure and repay the principal at the end. Suitable for people expecting a lump sum in the future.
- Interest-Only EMI – You pay monthly interest and clear the principal later. Ideal for business owners with seasonal income.
Plan Your Budget in Advance
A simple but effective practice is to include your gold loan EMI in your monthly budget. Before spending on lifestyle or luxury items, set aside the amount needed for repayment. This way, you won’t miss deadlines, and your gold remains safe with the lender.
Avoid Borrowing More Than You Need
When applying for a gold loan, it can be tempting to borrow the maximum amount offered. However, borrowing more than required can lead to higher interest costs and repayment stress. Always borrow only what you actually need.
Pay on Time to Protect Your Gold
One major risk of taking a loan against gold is that if you fail to repay on time, the lender can auction your pledged gold. For many families, gold has sentimental value. To avoid losing it:
1. Set up auto-debit for EMI payments
Opting for an auto-debit facility ensures that your gold loan EMIs are deducted automatically from your bank account on the due date. This minimizes the risk of forgetting payments, protects your gold, and keeps your credit history strong.
2. Keep reminders in your phone for due dates
Even with auto-debit, it’s wise to set reminders on your phone for EMI due dates. This helps you keep track of payments, ensures sufficient funds in your account, and avoids accidental defaults that could put your gold at risk.
3. Maintain a small emergency fund to cover payments if your income is delayed
Unexpected delays in salary or income can disrupt EMI schedules. Having a dedicated emergency fund helps you manage such situations smoothly, ensuring that your gold loan repayments are not missed and your pledged gold remains safe from auction.
Prepay When Possible
If you have extra income from bonuses, savings, or business profits, consider prepaying your gold loan. Prepayment reduces your outstanding balance and interest burden. Most lenders allow partial or full prepayment with minimal or no charges.
Avoid Multiple Gold Loans at the Same Time
Many people take loans against gold from different lenders, thinking it will help them meet expenses faster. However, handling multiple loans can create confusion and repayment stress. It is better to clear one gold loan completely before taking another.
Stay Connected with Your Lender
1. Extend the loan tenure
Lenders may allow you to extend the gold loan tenure, which reduces your monthly EMI burden. This option provides extra time to repay while ensuring your pledged gold remains secure.
2. Offer restructuring of EMIs
In some cases, banks or NBFCs can restructure your EMIs by adjusting amounts or frequency. This flexibility helps you repay comfortably without missing deadlines or risking your pledged gold.
3. Provide short grace periods
Lenders may grant short grace periods if you face temporary financial stress. This breathing space helps you arrange funds and prevents immediate default or risk of gold auction.
Monitor Gold Prices
The value of a loan against gold depends on the market price of gold. If prices fall, lenders may ask for additional margin or repayment. Keep an eye on gold price trends and plan accordingly, especially if you are repaying under a bullet repayment scheme.
Final Thoughts
A gold loan is one of the fastest and most reliable ways to arrange funds during emergencies. However, repayment requires discipline and planning. By choosing the right repayment method, budgeting smartly, borrowing only what you need, and paying on time, you can easily manage your loan against gold without stress.
Also read: Striking Gold in Dubai: Essential Tips for Establishing a Lucrative Gold Trading Business
