It is no secret that gold has a special place in the hearts of Indians. India is among the leading countries in terms of gold imports, and the most common form of gold ownership in India is through jewelry. Gold in India is not only a precious ornament but also a valuable investment that can be liquidated during times of urgent financial needs, such as medical emergencies, business expansions, and other financial liabilities. In such cases, gold holdings can be leveraged easily and efficiently to obtain loans. Over the past two decades, gold loans have become more mainstream and as a regulated industry, it provides a safe option to monetize dormant gold holdings without losing the underlying assets.
Gold loan is a popular option for those seeking quick financial aid, primarily due to the ease of the process. This has led to an increase in the number of banks and NBFCs focusing on this sector. However, borrowers should exercise caution when applying for a loan against gold to avoid making common mistakes. Here are a few tips to consider:
Check the creditor’s credibility: Since a gold loan is a secured loan, it is crucial to ensure that the creditor is trustworthy. Look for well-established banks or NBFCs with a good reputation in the market.
Compare your options: Research and compare different options to ensure that you get the best deal. Look for a creditor that offers a lower interest rate or a higher loan to value (LTV) ratio. Also seek a lender that helps with a quick disbursal, with minimal paperwork and assessment. For your convenience, some lenders also offer doorstep service so that you can complete the process without leaving the comfort of your home.
Consider the repayment structure: Understand the repayment terms offered by your creditor, including regular EMIs, partial repayment, interest only payments, and bullet repayment. This will help you plan your finances and avoid defaults.
Avoid ignoring LTV calculation: LTV is a crucial factor in risk assessment and determines the loan amount. Creditors usually fund up to 75% of the total value of your gold.
Be aware of the quality and form of gold that qualifies for the loan: Creditors approve loans only on gold objects that exhibit a purity of 18-22 carat or above. Banks do not accept gold bars or bullion for a gold loan. Gold coins must be 99.99% pure, with a weight not exceeding 50 grams.
Be sure to repay the loan amount in time: a delay in payment can affect your credit score adversely, and in extreme cases, may cause the ornaments stored with the lender to be auctioned in case of non repayment.
By keeping these tips in mind and thoroughly understanding the loan terms and conditions, borrowers can make an informed decision when applying for a gold loan.