5 Top Things to Remember When Closing a Gold Loan

Introduction

• A brief introduction to gold loans: What they are and why they’re popular for short-term borrowing

Gold loans are collateral backed loans, where the borrower’s gold serves as a security against which they avail loan from the lenders. The borrower is required to pay an interest component as per the repayment schedule as stipulated in the loan agreement. Once the obligation is paid in full, including principal, interest, as well as any applicable charges, the custody of gold is given back to the borrower. Gold loans are one of the most popular forms of lending in the country for a number of reasons such as, these are comparatively cheaper to avail i.e. gold loans attract lower interest rates as compared to traditional loans such as personal loans. Also, gold loans are fairly easy to avail, i.e. the application process is quick and the funding comes through quickly, and many other reasons!

• Why closing a gold loan properly is crucial for avoiding future complications

Be it gold loans or any other forms of loans, ensuring appropriate closing is crucial. This is due to the fact that lending decisions are made on the basis of the borrower’s borrowing history as well as repayment capacity. Since, all the loan related records are tagged to an individual’s borrowing history, a delayed closure of incorrect information can result in difficulties in availing future loans.

• Overview of the article: Key things to remember when closing a gold loan

In this article, we will discuss why it is important to close the gold loans properly and the key things that the borrower should remember!

1. Clear All Outstanding Payments Before Closure

• Importance of paying off the loan fully: Ensure all EMIs, interest, and additional charges are cleared. Doing so ensures that there is no residual recoverable amount that gets reflected in your credit profile, as a longstanding outstanding amount in your loan records can signify that the borrower is unreliable when it comes to repayment, and this can hamper your future loan applications.

• Double-check for hidden fees: Prepayment charges, late fees, or interest recalculations. The hidden fees can come as a surprise and can impact your repayment plans. Knowing about additional or hidden charges can help clear off the total outstanding efficiently.

• How to confirm the final outstanding amount: Request a statement from the lender and verify the figures. Many lenders have a great customer relationship team who can help understand each line item and any outstanding dues. One such lender is indiagold. At indiagold, the borrowers are reached out by a relationship manager, who can help understand the commercials of loans i.e. any applicable charges apart from the standard interest charges as stipulated in the loan agreement.

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2. Obtain a Closure Certificate or ‘No Dues’ Letter

• What you need at the time of closure: A closure certificate or ‘no dues’ letter is one of the most important gold loan closure documentation, it can help to prove the loan is paid off. Loan closure letter is provided to the borrower by default. I.e. the borrower does not need to request for one. To ensure that you as a borrower receive the closure letter, you can ensure that the communication details like email id, mobile number, and communication address maintained in the lender’s record are updated.

• Why it’s essential: Protects you from any future claims of unpaid dues or discrepancies. Even in an event of misrepresentation in your credit record, you can raise the discrepancy with the agency with the closure letter as the supporting document to record the fact that you have cleared all the dues, and there are no more recoverable charges for the said loan.

• How to ensure accuracy: Make sure the document clearly states the loan is closed and the gold is returned. An explicit mention helps strengthen your case in an event of a future discrepancy and can prove to be instrumental in ensuring that you do not owe any money to the lender for the said loan.

3. Understand the Gold’s Market Value at Loan Closure

• Gold’s valuation may fluctuate: How changes in gold prices can impact the loan balance or your refund. As gold is a fluctuating asset, i.e. the gold price fluctuates on a real time basis in the international as well as the domestic market, the amount of loan that can be availed against your collateral also changes as it is dependent on the value of your gold collateral.

• Revaluation at closure: Depending on the lender’s policy, at the time of loan closure a revaluation might be warranted. Ensure that the process is carried out in-line with the policy and any outstanding is paid to ensure no dues are pending with you.

• Tips for dealing with fluctuations: Stay informed about current gold rates to avoid surprises. A massive fluctuation might push the LTV of your loan beyond the lender’s permissible limit, and that might warrant you to pay the difference. Ensure that you are aware, and pay-off such amounts at the earliest.

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4. Ensure Smooth Retrieval of Your Pledged Gold

• What to do when picking up your gold: The exact process for retrieving your gold once the loan is settled is pretty straightforward. You have to ensure that all the dues are paid in full. Once done, ask for a no-due certificate/loan closure certificate from the lender, and wait for the lender to bring out the gold collateral. Once the collateral is ready to be handed over, cross-verify the shape and form and the weight of the gold collateral, it should match that mentioned in the loan documents. Upon receiving the custody of the collateral, the lender will send the gold loan no objection certificate (if applicable) to your registered address/email.

• Important details to check: Condition of the gold, any additional charges for storage or insurance is one of the most important stages of the gold loan closure process. Condition and weight of the gold should match as it was at the time of application. The weight and form of gold is generally mentioned in the loan document.

• Avoiding delays: How to ensure the lender processes your gold return without unnecessary holdups. The release may take standard time in-line with the lender’s policy, as the gold collateral is generally stored in secured locker facilities, and bringing the same from such facilities may take time.

5. Monitor the Impact on Your Credit Report

• How closing a gold loan affects your credit score: The positive and negative outcomes. Closing the loan on time by paying timely repayments have a positive impact on your credit profile. It signifies that the borrower borrows responsibly and is sincere with the repayments. On the other hand, failing to close the loan on time, or making delays in repayment can have a negative impact on your credit score as it highlights irresponsible borrowing habits and can prove to be a roadblock in future loan applications.

• What if you’ve missed payments?: Potential effects of defaulting or late payments on your credit history can be detrimental. Missed or delayed repayments can highlight irresponsible borrowing patterns, and can classify the borrower as a high risk borrower which can have a negative effect on your future loan applications too.

• Ways to maximize credit benefits: Ensure timely payment to improve your credit rating. Making gold loan interest repayments and principal payment on time and in-line with the repayment schedule of the loan highlights the borrower’s discipline and responsible repayment patterns. This is a green flag for the lenders, and can help the borrower avail further loans in the future with enhanced benefits such as borrower friendly terms and conditions.

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You will receive a call from our Relationship Manager