When you need funds, you can always rely on your gold jewellery and use it as security for a gold loan. This is especially true when it is gold that is sitting idle in a bank locker. These loans are affordable, easy to get, and offer ample funding.
Moreover, you can repay your loan through EMIs or bullet repayment in order to get the ownership of your jewellery back. You can check your repayment schedule using a gold loan calculator to plan your budget accordingly.
Lenders also offer you an option to foreclose your gold loan. By opting for the gold loan foreclosure, you can save on the total interest payments made towards the loan repayment.
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Read on to know more about the gold loan foreclosure procedure and the key facts about the process.
What is a Foreclosure of a Gold Loan?
As a secured loan, you are required to pledge your precious assets. In this case, you can put up gold jewellery, coins, or bars, as collateral. You can only access these assets once you repay the outstanding amount, but you do not necessarily have to wait until the end of the tenure.
In case you have enough funds to foreclose the loan, you can pay it off and close the account early. By doing so, you save money by reducing your interest outgo, and you also get your gold back sooner.
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Do keep in mind that foreclosing the loan is a provision, and some lenders have special terms applicable. For instance, some lenders charge a foreclosure fee. This fee may range between 0.5% to 2% of the outstanding balance.
This is an important point to keep in mind because such fees can quickly negate any savings you would have made by foreclosing the loan. On the other hand, some lenders even waive this fee if you foreclose your loan after three months of the loan disbursal.
You can calculate the EMIs and interest charges that you otherwise had to pay using a gold loan calculator. This is a helpful tool, and you must use it when planning your loan. Some lenders may even have a dedicated loan foreclosure calculator. This tool helps you calculate exactly how much you stand to save.
How is a Gold Loan Foreclosure Different from a Partial Payment?
In addition to EMIs and bullet payments, you can also repay your gold loan through a part pre-payment. This repayment method allows you to save on the interest payments that you make.
Simply put, part pre-payment is when you deposit a portion of your outstanding balance. This works to reduce your total principal, and thereby the interest payable as well. As such, either your loan EMI amount reduces or the tenure on the loan.
However, note that you get the benefit of part pre-payment only if you deposit a significant part of your outstanding balance.
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Moreover, just like the foreclosure of a gold loan, part-payment of a loan also attracts certain fees that may vary depending on the lender. Most lenders charge between 2%-6% of the outstanding balance if you make a part-payment for your loan.
Once you make a part pre-payment, you will have to continue repaying the loan, based on the repayment plan you chose. On the other hand, foreclosure means the payment of your dues against the loan entirely.
After your gold loan foreclosure, you do not have to continue the repayment.
What are Gold Loan Foreclosure Fees and Charges?
Some lenders may forego the foreclosure charges if you prepay the loan. However, most lenders levy a foreclosure fee that amounts to a certain proportion of the outstanding balance.
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This fee may range between 0.5% to 2% of the remaining loan amount, depending on the lender that you may choose. So, the best gold loan for you would be the one with zero foreclosure fees. In such an arrangement, you enjoy the maximum benefit of savings.
Benefits of Foreclosing Your Gold Loan
When you decide to opt for a gold loan foreclosure, the following are the benefits that you get to enjoy:
Eases the Debt Burden
A debt may seem like a burden, which you can get rid of by foreclosing the loan early. Since you do not have to pay EMIs any longer, you can allocate parts of your budget to other necessary expenses.
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Saves on Interest Payment
Since your gold loan tenure ends before the stipulated time period, you do not have to pay interest for the entire repayment schedule. Hence, you can save on the total interest paid towards gold loan repayment by opting for foreclosure.
Reduces Loan Tenure
By opting for gold loan foreclosure, you can take the burden of paying EMIs for the remaining tenure off your shoulders. Do keep in mind that you can also enjoy this benefit if you opt to partially prepay your gold loan.
Enhances Credit Score
Paying your loan dues on or before time positively impacts your credit rating. You may witness a hike in your credit score after you foreclose your loan. Moreover, it showcases that you can handle secured credit, and have done so successfully.
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Gets Ownership of Asset Back
Once you repay the loan in full, the ownership of your pledged gold item is transferred back to you. This is a key reason to foreclose a loan, as your gold’s value may have appreciated during the tenure. Getting it back as soon as possible enables you to leverage it further, for greater value or even sell it for a profit.
In conclusion, if you wish to save on interest payments and ease the burden of debt, you may go with the loan foreclosure facility. However, do a thorough cost-benefit analysis to ensure that foreclosing the loan is the best move for you.
