In India, gold loans have emerged as a favoured financing solution, allowing you to leverage this valuable asset to get access to the required funds. When opting for a gold loan, you get various repayment options, including bullet repayment and Equated Monthly Instalments (EMIs).
Each method caters to distinct financial situations and borrower preferences. Read on to know about the difference between these gold loan repayment options to determine which one suits your financial requirements.
A gold loan is a secured financing option that lenders provide against the gold jewellery or coins/bars that you put up as collateral. The amount sanctioned as a loan is typically a certain percentage of the value of your pledged assets.
Compared to other types of loans, they have minimal documentation requirements and generally offer quick disbursement. You can either choose to pay the borrowed sum and the interest either in one go or in flexible monthly instalments. The maximum repayment period for a gold loan usually ranges from 3 months to 3 years, depending on the lender.
Lenders typically allow you to select a repayment option that best suits your financial situation and income stability. Here are the types of gold loan repayment methods:
This refers to a repayment option where you have to pay the principal and interest amount in monthly instalments over a predetermined period
This refers to when you have to pay the principal and interest amount in one go once the tenure ends
This is one of the most popular methods of repayment for gold loans. Check out the details of EMI on a gold loan below:
It involves paying a fixed amount each month that includes both the principal and interest components for a predetermined period.
Choosing the monthly instalment structure for repaying your gold loan offers several advantages. These include:
While they offer many benefits, it is crucial to understand the potential downsides of EMI on gold loan. These include:
This option caters to borrowers with specific financial circumstances and preferences, diverging significantly from the regular monthly payment structure of EMIs. Check out the details below:
A bullet repayment in a gold loan is a repayment scheme where you repay the principal and interest amount in a lump sum at the end of the tenure. Since you pay this loan in one shot, it is called a bullet repayment.
This repayment option presents a distinct set of advantages, particularly appealing to those with specific income patterns or financial goals. These include:
As you don’t have to pay a fixed amount monthly, this repayment option enables you to manage your cash flow effectively.
This repayment option is suitable for you if you require funds for short-term purposes, such as your child's educational needs or medical emergencies. This allows you to manage your financial obligations more efficiently.
A gold loan bullet repayment is suitable if you expect a lump-sum amount to be received at the end of the tenure. These include a bonus, harvest, asset sale, etc.
While this repayment option offers attractive flexibility and delayed financial commitment, it is crucial to be aware of its potential drawbacks. These include:
You require a significant amount for repayment at the end of the tenure, which may be challenging if your income is uncertain
If you don’t manage to mobilise funds at the end of the tenure, you may default on loan repayment
Choosing the right repayment method for your gold loan can significantly impact your financial management and overall borrowing experience. While both repayment options are popular, they cater to different financial situations and preferences.
Here is a detailed comparison of these to help you understand them and make a better-informed decision:
| Feature | EMI on Gold Loan | Bullet Repayment |
|---|---|---|
| Monthly Payments | Yes | No |
| Interest Cost | Lower if the tenure is short | Higher for long tenures |
| Cash Flow Impact | Gradual | One-time outflow |
| Suitable For | Salaried or steady-income earners | Seasonal earners, lump-sum receivers |
| Risk of Default | Low (if income is steady) | High (if funds not managed well) |
Deciding between EMI and bullet repayment depends on your individual financial circumstances, income stability, and repayment preferences. Here are the things to consider:
Opt for an EMI on a gold loan:
Select the bullet repayment option:
To understand the practical implications of choosing either of the repayment options, check out these hypothetical scenarios:
Example 1 – EMI Plan
Consider that Raj takes a gold loan of ₹1 Lakh for a tenure of 12 months at an interest rate of 12% per annum. In this scenario, Raj will pay a fixed EMI of ₹8,883 each month. Over the course of the year, his total payable amount will be ₹1,06,600.
Example 2 – Bullet Repayment
Consider that Meena borrows the same amount of ₹1 Lakh for a 12-month period but opts for the bullet repayment method. Meena has no monthly EMI obligations. Instead, she will pay the entire amount in a single lump sum at the end of the 12-month tenure. Her total payable at maturity will be ₹1,12,000.
The maximum repayment period for a gold loan typically ranges from 3 months to 3 years, allowing you to choose a tenure based on your financial capabilities. When selecting a repayment method, considering flexibility is key.
EMI on gold loans generally offers adaptable tenures. Many lenders even permit prepayments, allowing you to reduce your overall obligations early. In contrast, a bullet repayment comes with a fixed tenure. It demands strict financial discipline to ensure full repayment at the end of the tenure.
However, your choice isn’t limited to these options, as lenders are now innovating and offering hybrid and overdraft gold loan facilities. These options offer more flexible repayment structures that align with your unique financial requirements.
Choosing between these two repayment options ultimately depends on your financial circumstances and income stability. The EMI option is best suited if you have a predictable income or are looking for a longer repayment period.
On the other hand, bullet repayment is ideal for you if you wish to borrow funds for a shorter tenure. You may also consider this repayment method if you anticipate receiving a lump-sum amount at the end of the tenure.
1. Which loan has the longest repayment period?
The EMI option on a gold loan typically has a longer repayment period, which can range from 1 to 3 years. On the other hand, bullet repayment is designed for a shorter term, typically ranging from 6 to 12 months.
2. Can I close my gold loan early?
Many lenders allow prepayment or foreclosure of gold loans if you opt for an EMI option.
3. What is the maximum repayment time for a gold loan?
The maximum repayment period for a gold loan is 3 years, depending on the lender’s policies.
4. How to pay off a gold loan faster?
To pay off a gold loan faster, consider these strategies:
5. Which one is better, the reducing EMI amount or the loan duration?
Choosing between the two depends on your individual financial goals. Reducing loan duration is generally better if your priority is saving significantly on total interest paid and becoming debt-free faster.
Reducing the EMI amount is better if you need immediate relief on your monthly budget and desire more disposable income, even if it means paying more interest overall.
