For Indians, gold is not just precious but also auspicious. Besides, it acts as financial support in difficult times. People are increasingly using gold loans to cover financial emergencies. In fact, India’s organized gold loan market is currently witnessing a boom. But then, it is easy to fall behind when applying for a gold loan. Here are the top five tips to follow when applying in for a gold loan.
- Assess the Credibility of the Lender— If you are looking for a gold loan, it is basically a way to pledge your gold to the lender for a specific amount. The lender can retain your gold until the loan is paid off. Make comparisons online of lenders and check their credibility. Use web tools for the comparison of lenders on parameters such as annual interest rates and processing charges.
- Consider All Available Options, and pick the best from among them— There are many lenders available today to offer you a gold loan. Each one is different and offers different options for borrowers. You should look into all possible gold loan options before making your final decision. There are many lenders that offer attractive, competitive gold loans at amazing rates. Since you are a borrower, research is your most powerful tool. Compare the rates of interest and loan to value ratio (LTV), then narrow down your list. You will then be able to make your final decision based upon the best offer, depending on what you need.
- Understanding Your Gold is Important— Gold loan lenders will grant loans for gold jewellery with purity greater than or equal to 22 karats, so check gold loan rate per gram. Banks and financial institutions do not accept gold bars, gold coins over 50gms, and bullion as collateral. Additionally, if the jewellery you are pledging contains gemstones, their value is not taken into account. So, it is crucial to have a clear understanding of the purity and value of your gold before you apply for a loan.
- Inquire About the Applicable LTV Ratio— You don’t receive the full gold value as a loan. According to the Reserve Bank of India rules, a gold loan can only have a loan-to-value ratio of up to 75%. If the gold you have is worth Rs. 1 lakh, then only up to Rs. 75,000 can be borrowed. The LTV ratio determines the amount you can borrow against your gold. Different lending institutions use different criteria to calculate this ratio.
- Consider the EMI options – Gold loans are often easier to obtain than traditional loans. And because they are secured, lenders can offer borrowers different repayment terms. Here are four repayment plans to consider.
- Regular EMI – Monthly repayment plan with a basic month-to-month structure. This is the best choice for salaried employees who have a fixed cash flow.
- Partial Repayment – The most interesting characteristic of this EMI structure is that it’s customizable. This allows you to repay the principal in order to lower your interest. It is best suited for business owners.
- Only Interest EMI – This is a customized repayment option. You can pay the interest in EMI and the principal amount in full. This option can be considered if you are certain, you will receive a lump sum (from an investment you made previously) that coincides with your loan tenure’s end.
- Bullet Repayment – Interest is calculated on loan each month. But you have the option of not paying the EMI throughout the loan term. Instead, the total amount can be repaid along with interest at the time of maturity. This option can be considered if cash flows are uncertain currently but are expected to resume at the same time as your loan ends.
Although gold loans can prove to be lifesaving in certain situations, it’s easy to make a wrong move while applying for such a loan. So, it’s only after careful consideration of gold loan companies terms that you decide on whether or not to borrow from them.