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Types of Gold Loan Repayment
Gold loan offers multiple repayment options to suit different financial situations. Choose based on your cash flow and how soon you can repay.
| Repayment Type | Monthly Payment | Best For |
|---|---|---|
| Regular EMI | Principal + Interest | Salaried with steady income |
| Bullet Repayment | Interest only | Business owners expecting income |
| Overdraft | Interest on utilized amount | Revolving credit needs |
| Upfront Interest | Interest deducted at start | Short-term borrowing |
1. Regular EMI Scheme
Most common and cost-effective option. Fixed monthly payment includes both principal and interest.
How it Works:
- Equal monthly installments throughout tenure
- Each EMI has principal + interest component
- Interest reduces as principal decreases
- Get gold back after final EMI
EMI Example
Loan: Rs. 2 lakhs | Rate: 12% | Tenure: 12 months
EMI = Rs. 17,769 per month
Total Interest = Rs. 13,228
Pros & Cons:
| Pros | Cons |
|---|---|
| Lowest total interest cost | Higher monthly outgo |
| Disciplined repayment | Fixed payment schedule |
| Lower interest rates | Less flexibility |
2. Bullet Repayment Scheme
Pay only interest every month. Entire principal paid at the end of tenure.
How it Works:
- Monthly payment = Interest only
- Principal remains same throughout
- Lumpsum principal payment at maturity
- Can extend if unable to pay principal
Bullet Example
Loan: Rs. 2 lakhs | Rate: 15% | Tenure: 12 months
Monthly Interest = Rs. 2,500
Principal at end = Rs. 2,00,000
Total Interest = Rs. 30,000
Pros & Cons:
| Pros | Cons |
|---|---|
| Low monthly outgo | Higher total interest |
| Good for business cash flow | Large payment at end |
| Flexible, can prepay anytime | Higher interest rates |
3. Overdraft (OD) Facility
Get a credit limit against gold. Pay interest only on amount used. Similar to credit card.
How it Works:
- Credit limit based on gold value
- Withdraw any amount up to limit
- Interest charged only on utilized amount
- Deposit money to reduce outstanding
- Re-withdraw as needed
Overdraft Example
Credit Limit: Rs. 5 lakhs
Utilized: Rs. 2 lakhs for 15 days
Rate: 18% p.a.
Interest = 2,00,000 � 18% � 15/365 = Rs. 1,479
Pros & Cons:
| Pros | Cons |
|---|---|
| Pay only for usage | Highest interest rates |
| Revolving credit | Self-discipline needed |
| No fixed EMI | Can lead to debt trap |
4. Upfront Interest Scheme
Entire interest deducted from loan amount at disbursal. You receive net amount.
How it Works:
- Interest for full tenure calculated upfront
- Deducted from loan amount at start
- No monthly payments needed
- Repay only principal at end
Upfront Interest Example
Loan: Rs. 2 lakhs | Rate: 18% | Tenure: 6 months
Upfront Interest = Rs. 18,000
Amount Received = Rs. 1,82,000
Amount to Repay = Rs. 2,00,000
Cost Comparison: All Schemes
For Rs. 2 lakhs loan, 12-month tenure:
| Scheme | Rate | Monthly Payment | Total Interest |
|---|---|---|---|
| Regular EMI | 12% | Rs. 17,769 | Rs. 13,228 |
| Bullet | 15% | Rs. 2,500 | Rs. 30,000 |
| Overdraft | 18% | Variable | Rs. 36,000* |
| Upfront | 20% | Nil | Rs. 40,000 |
*Assuming full utilization. Actual OD interest depends on usage.
Which Scheme to Choose?
- Regular EMI: Best for salaried individuals with steady monthly income. Lowest cost.
- Bullet: For business owners expecting lumpsum income (bonus, harvest, contract payment)
- Overdraft: For traders/businesses with irregular cash flow. Use only if disciplined.
- Upfront: Only for very short-term needs (1-3 months). Convenience over cost.
Frequently Asked Questions
Generally no, once chosen you continue with that scheme till loan end. However, you can close existing loan and take new loan with different scheme. Some NBFCs allow scheme change during renewal at additional cost.
Yes, prepayment is allowed without penalty in most gold loans. You can close anytime by paying outstanding principal + accrued interest. Some upfront interest schemes may have partial non-refundable interest, check terms.
Penal interest (1-2% extra) is charged on overdue amount. After 90+ days default, lender can initiate auction of gold. They'll send multiple reminders before auction. Pay at least interest to avoid auction.
Yes, some lenders allow partial release. If you pledged multiple items, you can release some by paying proportionate principal. For example, if 50 grams pledged for Rs. 2 lakhs, paying Rs. 1 lakh may release 25 grams.
Conclusion
For minimum cost, choose Regular EMI scheme. For cash flow flexibility, consider Bullet or Overdraft. Always calculate total interest cost before choosing. Remember: convenience comes at a price - upfront and OD schemes cost more.
Use our Gold Loan EMI Calculator to compare repayment options!