Gold loans: Select Repayment plan That perfectly Matches Your Cash Flows

As the Reserve Bank of India (RBI) raises concerns about the risks linked to gold loans, lenders are reassessing their repayment structures to ensure they align with borrowers’ financial capabilities. In the future, loans from regulated entities might require repayment through equated monthly instalments (EMIs), ensuring more structured repayment schedules.

However, one of the major advantages of gold loans is their flexible repayment options. Borrowers have the freedom to choose from various plans that best suit their income patterns and repayment capacities.

Popular Gold Loan Repayment Options

Gold loan borrowers have several repayment plans to consider, each with distinct benefits:

• EMI-based Repayment: This is a fixed monthly repayment plan that includes both principal and interest. It’s ideal for those with stable, regular incomes.
• Non-EMI Options: For borrowers who prefer more flexibility, non-EMI repayment plans are available. These include:
  • Bullet Repayment: The entire principal amount, along with accumulated interest, is repaid in one lump sum at the end of the loan tenure.
  • Interest-Only Payments: Borrowers pay only the interest periodically (monthly or quarterly), with the principal due in a lump sum at the end of the term.
  • Partial Repayment: This option allows borrowers to make periodic payments, gradually reducing their balance.

How to Choose the Best Repayment Plan

Selecting the right repayment structure is crucial and should be based on the borrower’s financial situation and income pattern. “It’s important to choose a plan that matches your repayment capacity,” says Umesh Mohanan, CEO of Indel Money.

• EMI-based Plan: This is ideal for borrowers with a steady income. “Since EMIs include both principal and interest, this option typically results in lower interest costs compared to non-EMI plans,” explains Sahil Arora, Chief Business Officer at Paisabazaar.
• Non-EMI Options: For individuals with irregular or seasonal incomes, non-EMI options like bullet repayment or interest-only plans may be more suitable.
  • Bullet Payment Plan: Best for borrowers expecting a lump sum in the near future, such as a year-end bonus or maturity of an investment, says Adhil Shetty, CEO of BankBazaar.
  • Partial Repayment: This option can be attractive for those who want to reduce their balance incrementally when they have the cash flow to do so.

Matching Your Income Pattern to the Right Plan

The key to selecting a suitable repayment plan is understanding your income flow. Shaji Varghese, CEO of Muthoot FinCorp, advises that borrowers align their loan repayment plan with their income patterns. For instance:

• A salaried employee with regular monthly income can opt for EMIs.
• A retailer with daily earnings might prefer a daily repayment plan.
• A person with seasonal income may benefit more from a bullet repayment plan that requires a lump sum payment at the end of the tenure.

When taking out a gold loan, it’s essential to pick a repayment plan that matches your financial circumstances. Whether you choose a structured EMI plan for predictable repayments or a more flexible non-EMI option to match your irregular cash flow, ensuring that your loan repayment plan suits your needs will help avoid financial stress in the future.