3 Ways To Save Interest On Gold Loans

Ever since the coronavirus pandemic began impacting India, the country has seen widespread financial distress, with families losing incomes owing to job losses or their businesses slowing down or even shutting shop. 
In this wake, gold loans have gained popularity as they help provide a degree of respite to those people who have seen their household incomes get impacted adversely.

A lot of such people, often times, cannot pay back other loans, including credit card debt, as a result of which their credit history gets a blot and their CIBIL scores take a hit, rendering them non-creditworthy for future borrowings.  
One of the key features that make a gold loan different, and more attractive, as compared with a traditional loan is that it allows the borrower flexibility in how they wish to repay it.

Repaying gold loan

Gold loan borrowers can opt for a number of ways of repayments, as long as their lender allows that.

Pay both principal and interest via EMIs:

This is similar to paying off a home loan or a car loan, in that a borrower keeps paying off the principal and interest in equated monthly instalments (EMIs) till the tenure of the loan ends. 
Once a borrower has repaid everything, they can take their gold back. This works best for salaried people who get paid monthly and also have to incur other household expenses.  

Interest first, principal later:

Unlike a traditional loan backed by property or other collateral, a gold loan can be repaid more flexibly. A borrower can choose to clear off the interest portion first, as EMIs, and the principal amount at the end of the loan period. This allows borrowers time to tide over a cash crunch, and lets them make easy repayments to suit their pocket. 

Interest and principal simultaneously:

As long as your gold loan lender allows, a borrower can even be flexible with the repayment schedule. A borrower can part-pay both principal and interest monthly, quarterly or half-yearly, depending on their own personal cashflow situation.

One-time repayment:

A borrower can also pay the entire principal and interest at one go at the end of the tenure of the gold loan. This means the borrower doesn’t have to pay in monthly instalments or in any other frequency. All they have to do at the end of the loan tenure is to simply repay the principal and interest, and get back their gold. 
Most lenders would, however, allow this one-time payment option only on short-term loans that have tenures of six months or less. 

Saving interest on gold loans

By being smart about it, borrowers can also save some interest on the repayments. Here are a few ways that can help borrowers save interest on a gold loan. 

Pay the principal amount first:

Borrowers can ask their lenders to make their gold loan repayment schedule such that they first pay off the principal amount in multiple instalments, and then repay the interest. This way, they stop accruing any extra interest on the unpaid principal amount, thereby bringing down the interest cost.  

Offer a non-gold asset as collateral:

Borrowers can bring down the cost of borrowing by offering another asset like land, real estate, fixed deposits, stocks or anything else that has value, as collateral. However, one must ensure that the asset being offered has not been pledged elsewhere. The lender will value the non-gold asset separately and offer a lower, blended rate of interest. 

Pay both principal and interest in installments:

Many a time people tend to choose repayment plans in which the interest is repaid first and then the principal amount is repaid at the end of the loan period. This can drive up the interest outgo on the loan, as the loan will continue to incur interest on the full principal amount until it is repaid. So, borrowers can choose to pay back the principal along with interest in easy instalments, thereby progressively bringing down the gold loan interest rate cost, as the principal gets repaid.  

Read this blog for more: How to get the best interest rate on gold loan

Conclusion

Small lenders or pawn shops in the unorganised gold loan market may not offer much flexibility either in repayment terms or in accepting non-gold assets as collateral. However, reputable lenders like IIFL Finance steal a march here.  
A lender like IIFL Finance not only allows you to apply for gold loan online, and get the gold valued and the loan disbursed, all from the comfort of your own home, but also offers a variety of repayment methods. 
So, as a borrower, you should choose a repayment method that allows you sufficient flexibility to manage your cash flows and reduce your interest outgo.