Gold loans are the ultimate solution to your financial needs. The gold loan can be easily availed when you are on a money crunch and require financial aid for education, medical emergencies, down payment for property or business, agricultural needs, and even family vacations. The past year has been tough times for many families due to the COVID -19 pandemic and the pay cuts and loss of employment that organizations and individuals faced. Such times caused severe money crunch and saw families facing a shortage of cash liquidity. In such cases where there is an urgent requirement for liquid cash, gold loans are your best option.
Availing a gold loan is simple and requires only your gold, PAN card, or Aadhaar card. The requisite Know Your Customer (KYC) documents and in a matter of hours, your loan will be sanctioned. This loan can be easily availed by pledging your gold, either in the form of jewellery or coins and bars. The institution then runs a complete evaluation of your gold loan application before the loan is given against your gold.
Before applying for a gold loan, there are various factors that you must be mindful of:
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Credibility of lenders
Gold loans have only recently started becoming popular amongst borrowers and accepted by financial institutions. Gold loans are provided not just by Banking institutions but also by many Non-Banking Financial Companies (NBFCs), thus making gold loans easily available to all. Although most banking institutions and NBFCs are trustworthy. If the credibility of your preferred lender is not high, the terms of the loan might end up unfavourable for you. What you must also remember is that the value of the gold you pledge is higher than the loan amount given to you. This acts as a guarantee for the money for the lender while you do not have any guarantee for your gold. Hence, you must do a background check of the lender before you pledge your gold to them.
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LTV
There used to exist major disparities in the value of gold for loaning purposes. Evaluated through the Loan to Value ratio (LTV). As of April 1, 2021, the Reserve Bank of India (RBI) has increased the LTV from 75% to 90% depending on the institution and lender. This LTV ratio is what the lenders depend on when assessing your gold and this ratio is their assessment of lending risk that they examine before approving a mortgage.
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Gold purity and value of gold
The purity of gold plays a major role in the loan amount that you get from your lender. The minimum purity that lenders require is 18 Karat. However, they prefer 22 karat purity when taking in pledged gold. The value of gold varies from lender to lender. While some lenders and jewelers give only 60% value, some will value your gold at 90%.
While pledging your gold, you can increase the value you receive for your gold by keeping track of the market value of gold. When evaluating the value, lenders use one of the two methods; either the daily gold price is considered, or the weekly or fortnightly prices of gold are averaged and considered. Keep in mind that the value of the stones and gems is not taken into consideration when jewellery is pledged.
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Repayment structure
Knowing the various repayment structures available is essentially before availing a loan against gold. With most lenders, your repayment structure is flexible. The various repayment structures available are
- Equated Monthly Instalments (EMI) structure where the gold is returned to the borrower once all dues are paid.
- Bullet payment where the lender deducts the interest amount upfront from the loan amount.
- Paying the interest amount as the EMI and paying the principal loan amount at the end of the loan tenor.
Remember to select the repayment structure in accordance with the gold loan rate, loan amount given, and most importantly your repayment capacity.
Tenor, interest rates and other charges
The tenor and interest rates of a gold loan depend on the lending institution and the loan amount. Some lenders may extend it to 2 years depending on the mutually agreed terms of the loan by both the lender and the borrower. The interest rates on average, they range between 13% and 15%. Generally, NBFCs charge a higher interest rate due to their higher cost of funds and local lenders charge irrational rates if they are fraudulent. Also, certain financial institutions charge valuation charges, processing fees, and outstanding loan charges up to 1%.
Gold loans are the most efficient in terms of processing and time took. Hence, for any of your temporary liquid cash emergencies, a gold loan is the best option available. Apply for the Bajaj Finserv Gold Loan to get the best interest rates with the right evaluation.
Additional Read: How Does the Reverse Mortgage Loan Act as a Walking Stick for Senior Citizens?