5 ways to manage your gold loan repayment

5 MinsOct 13, 2022

When you avail of a gold loan -- or any loan for that matter -- timely and diligent repayment is your responsibility. In case of a gold loan, the fluctuation in gold prices will also impact your repayment. If the price of gold falls, the lender would ask you to foot the margin money or pledge additional gold. In such a case, if the outstanding gold loan amount is high and the repayment hasn’t been done for a while, it simply adds to your debt burden. Moreover, it reflects poorly on your creditworthiness. To avoid such a situation and avoid the possibility of losing the gold you have pledged (in case of default), it is in your interest to repay the loan on time.

5 Ways to Manage Your Gold Loan Repayment

Here are 5 ways you can comfortably repay your gold loan:

1. Regular Equated Monthly Installments  – Repaying via regular Equated Monthly Installments (EMIs) is useful to help instil discipline. If you have a regular and steady source of income, repaying by EMIs is easier. This way, you can repay both the interest and the principal regularly.

2. Pay monthly interest and principal at maturity – In this option, the principal is to be repaid at the end of the tenure of the loan. This will reduce your repayment burden to some extent. If you are finding it difficult to pay both interest and principal, you may consider this repayment option. But keep in mind that your debt burden effectively reduces when you repay both the interest as well as the principal, on time.

3. Make bullet payments – In this case, the bank charges you with interest monthly on the principal amount of the gold loan, and the entire payment is to be made at the end of the loan tenure. Some bank charge a higher gold loan interest rate if you choose bullet payments. This option works well if your repayment tenure is short, say up to 6 months or a year, and you have the capacity to repay the entire outstanding loan (principal + interest) in a single shot.

[Also Read Borrow funds easily against your gold]

4. Partial payments – As the name suggests, you pay partial repayments as and when convenient to you. The payment made is adjusted towards both the principal and the interest portions. If you cannot pay EMIs or regularly make interest payments, making partial payments is advisable. If you wish to save on your interest outgo, it is a sensible idea to make a large partial payment at the beginning of the tenure of your loan. Partial payment makes sense when you receive increments or bonuses. Axis bank levies no charges for part pre-payments of a gold loan.

5. Foreclosure – If you wish to clear off your gold loan sooner, and get your pledged gold back, then foreclosure is the option for you. Foreclose or pre-close your gold loan by repaying the entire outstanding loan amount ahead of its tenure. Bonus or windfall income, particularly, may be utilised in this regard.

Timely repayment of the gold loan will reflect positively on your creditworthiness/ credit score and prove to be in the best interest of your long-term financial well-being. You can also use Axis Bank’s gold loan calculator.

This article has been authored by PersonalFN, a Mumbai-based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.