How Does Part-Prepayment Work in a Gold Loan?
Part-prepayment reduces your outstanding principal. Since interest is calculated on the principal, a lower principal means lower interest going forward. The earlier you prepay, the more interest you save.
Most gold loan lenders charge zero prepayment penalty per RBI guidelines for floating-rate loans. Some NBFCs may charge 1–2% on fixed-rate loans. Always check your agreement.
An additional benefit: some lenders release a proportional amount of gold when you make a part-prepayment. If you prepay 50% of the loan, you can get 50% of your pledged gold back.
How Much Interest Can You Save by Making Extra Payments?
Formula: Interest Saved = Prepayment × (Rate/12) × Remaining Months
Prepaying ₹50,000 on a ₹2,00,000 loan at 12% after month 3 (9 months remaining): ₹50,000 × 1% × 9 = ₹4,500 saved. The compound effect means early prepayment always beats late prepayment.