Gold Loan Foreclosure: Charges and What to Consider

If you're considering closing your existing Gold Loan, it's essential to understand the process of foreclosure and the factors to consider before closing your loan. Gold loans have become increasingly popular in recent years due to their accessibility, competitive interest rates and quick disbursal. However, one should have a clear understanding of the foreclosure process to avoid any unexpected surprises.

In this article, we'll explain the concept of gold loan foreclosure, discuss loan prepayment options, and shed light on foreclosure penalties. 

Understanding Gold Loan Foreclosure

When you take a gold loan, you pledge your gold jewellery as collateral in return for funds. The loan amount is typically a percentage of the value of your gold ornaments or coins. You repay the loan in EMIs. Your EMI obligations would continue till the loan tenure (pre-decided) ends. Gold loan foreclosure refers to repaying the outstanding loan amount in full before the agreed-upon tenure. By doing so, you close your gold loan account and retrieve your pledged gold ornaments.

It's important to note that there may be certain terms and conditions associated with foreclosure, such as minimum repayment periods or restrictions on partial prepayment.

Gold Loan Foreclosure Fees and Charges 

Gold loan pre-closure charges vary across banks. If you have taken a gold loan from Ujjivan and would like to close it after one month from the date of disbursement, a pre-closure fee of 1% would be levied on the outstanding principal amount.

What are The Various Loan Prepayment Options?

Loan prepayment allows you to repay your outstanding loan amount before the end of the tenure.

There are two types of loan prepayment options:

• Partial Prepayment: This allows you to make a partial repayment towards your outstanding loan amount, reducing the principal and subsequently the interest burden. It can help lower your future EMIs or shorten the tenure of your loan.
• Full Prepayment: Full prepayment involves repaying the entire outstanding loan amount in one go, effectively closing the loan before the agreed-upon tenure.

Factors To Consider Before Gold Loan Foreclosure

Before opting for gold loan foreclosure, it's important to consider the following factors: 

1. Interest Savings 

   Calculate how much interest you can save by making a partial or full prepayment. You can use online EMI calculators or consult with your lender for accurate figures.

    

   Example Calculation: Suppose you have an outstanding principal of ₹3 lakhs at an interest rate of 18% per annum. Let's say there is one more year to complete for the loan. By prepaying the loan today, you save approximately ₹13,158 by way of interest. 

    

   Disclaimer: The above example is for illustration purpose only. Ujjivan SFB does not take any responsibility for the accuracy of the information. Please use a Savings Account Calculator and Recurring Deposit Calculator or consult with a financial expert for better understanding.

    

2. Financial Stability

   Assess your financial stability and ability to make prepayments. Consider your future cash flows, commitments, and any potential emergencies that may require immediate funds.

    

3. Foreclosure Penalties

   While foreclosure can help you close your gold loan early, it's important to understand the foreclosure penalties associated with prepayment. Banks impose these penalties to compensate for the early repayment and potential loss of interest income. 

    

4. Review the Terms and Conditions Carefully

   Before deciding to foreclose your gold loan, carefully review the terms and conditions stated in your loan agreement. Understand the penalty structure and factor it into your decision-making process. It's crucial to analyse these factors and make an informed decision based on your financial situation and goals. Consulting with a financial advisor can provide valuable insights tailored to your specific circumstances.