Bullet Repayment Gold Loan: What Is It And Should You Opt For It?

Once the loan amount has been determined, you must select a tenure for the loan, which usually ranges between 6 months to a year

Gold loans are one of the most popular borrowing options available in India that provide quick access to funds against pledged gold. These loans come with multiple, convenient repayment options, one of which is bullet repayment. This repayment method allows borrowers to repay the entire principal and interest at the end of the loan tenure instead of in monthly instalments. As a result, this is ideal for borrowers seeking short-term credit without having to make monthly payments. Let’s dive into the details of bullet repayments – how they work, the benefits they offer, and whether you should opt for one. 

What Is A Bullet Repayment?

A bullet repayment gold loan allows borrowers to pledge gold ornaments or coins in exchange for funds. However, unlike regular loans that require monthly repayments, a bullet repayment loan allows borrowers to repay the principal and interest in a single shot at the end of the loan tenure. The single shot ‘bullet’ repayment eliminates the stress of making monthly repayments. 

How Does Bullet Repayment Work?

The first step of the process is to pledge the gold to the bank or lender, who then assesses its purity and weight to determine its value. Based on the final value, the lender will offer you a loan amount which is usually 70-80 per cent, and sometimes up to 90 per cent of the gold’s market value. Once the loan amount has been determined, you must select a tenure for the loan, which usually ranges between 6 months to a year. You will not be required to make any monthly repayments during this loan term and instead settle the total loan amount (principal and interest) at the end of the loan tenure. Do note that some lenders may allow you to make only interest payments on a monthly or quarterly basis, while the principal can be paid at the end of the loan term.

Bullet Vs. Monthly Repayment Gold Loan 

Details	Value
	Bullet Repayment Gold Loan	Monthly Instalment Gold Loan
Loan Amount	₹2,00,000	₹2,00,000
Tenure	12 Months	12 Months
Interest Rate	12% per annum	12% per annum
Principal Amount	₹2,00,000	₹2,00,000
Total Interest	₹24,000	₹13,237
Total Amount Payable	₹1,24,000	₹2,13,237

What To Watch Out For?

• Interest rate: A bullet repayment gold loan will accrue interest over the loan term which must be paid at the end. If you haven’t planned ahead, this payment may seem daunting. Moreover, this type of gold loan typically features slightly higher interest rates compared to regular gold loans. This means that the convenience of deferred payments will come at a cost. 
• Risk of non-repayment: Since the principal and interest must be paid in a single repayment at the end of the loan tenure, it is crucial that you have the funds ready to do so. If you’re unable to repay the loan at the end of the term, the lender will be in their full right to auction your pledged gold to recover the loan amount. So, plan ahead when you take this loan to ensure you can repay it when the time comes. 

Should You Opt For It?

A bullet repayment loan is a suitable option if you’re looking for short-term funding without the hassle of monthly payments. However, it is essential to have a repayment plan in place before the end of the loan term to ensure you can make the full repayment. If you are unsure of arranging or accumulating the loan amount by the end of the term, avoid taking this loan for a non-payment can affect your credit standing.  

The writer is DGM, Communication at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar.