6 Important factors to keep in mind while taking a gold loan
Among wide options of secured and unsecured loans, a gold loan is an easy one to avail of. It is a secured loan where you pledge your gold articles or ornaments with the lender as collateral. Most gold loan providers don’t ask for your CIBIL score to sanction the loan. All you need to ensure is that you are of eligible age, have gold in your possession, and submit some basic documents. Some lenders may also ask you for income proof before approving your application.
Financial institutions like banks and NBFCs provide gold loans at the best gold loan interest rates. However, you shouldn’t rush into borrowing just because it is available. First, analyse your financial situation and plan your repayment. To do this hassle-free, there are certain factors that you need to think about before proceeding with a gold loan. Read on to find out what they are.
Understand how the gold loan amount is calculated
Financial institutions usually offer up to 75% LTV on the market price of gold. The cost of gold is calculated in two ways. Either gold prices of the past two weeks are considered on average or the daily rate is considered to arrive at a gold value. Most lenders offer a gold loan amount of limit up to Rs. 20-25 lakh. It is better to take a gold loan when the value of gold rises as you get better interest rates.
Consider the gold loan interest rates
Depending on the type of interest rate you choose, fixed or floating, the interest amount you pay will differ. Check which interest type will be favorable to you and remember, the interest rate charged differs for each lender based on their internal policies and benchmark rates. Opt for a lender offering the best interest rates and low or nil processing fees. The interest rate charged also differs on your loan value. The higher the gold loan amount, the higher will be the interest rate charged.
Choose the right type of lender
The first thing you need to do is avoid taking a gold loan from small shops or unrecognized lenders who are unregulated or may offer unfavorable terms. As gold is a valuable asset, its safety does matter. You can either go for a bank or an NBFC for a gold loan. Well-recognised financial institutions evaluate your gold accurately and have safety protocols in place. They also have trustworthy valuations methods to measure how pure your gold security is and will offer you fair value based on the weight as the loan amount. However, note that the interest rate and other features will differ for each type of institution. For example, public sector banks offer lower interest rates than private banks while NBFCs are likely to offer a higher loan amount.
Take note of the processing fees
Financial institutions do charge you fees apart from the interest rate. There is often a fixed amount or a small percentage charged as a processing fee. Some lenders may also levy part-prepayment or foreclosure charges as well as charges for valuation and statements. So, you consider the interest rates and other associated charges to select the best gold loan for yourself.
Select a suitable tenor
As a gold loan is a short-term debt, you should plan your repayment. Most lenders offer a maximum of 36 months as a repayment period. So, select a comfortable repayment duration that suits you. Remember that defaulting on repayment not only leads to penalty charges but could also result in the loss of your gold assets as the lender may auction it to recover dues.
Check the repayment structure
Most gold loan providers offer you a flexible repayment structure. Choose one that suits your needs.
- Bullet payment: Pay only the interest every month and repay the principal at the end of the tenor.
- Upfront interest: Pay the entire interest at the beginning and the principal amount at the end of the tenor.
- Standard EMI: Repay in standard EMIs which contains both the interest and principal amounts.
While availing of financing with the best gold loan interest rates possible, keep in mind that most lenders require gold to be of at least 18 carats and do not accept bars. Gold coins also have some restrictions in terms of weight and are only accepted when they are issued by banks. Learn about this in advance for a smoother experience. Also, check about other customer-friendly features offered by lenders before shortlisting the right one.
Consider the Bajaj Finserv Gold Loan as it offers finances up to Rs. 20lakh on a competitive interest rate and has transparent fees and charges. It also has an accurate carat meter for valuation and doesn’t charge anything for part-prepayment or foreclosure, which makes this NBFC one of the leading gold loan providers. What’s more, you get flexible repayment options and even a part-release facility of your gold ornaments when you need them back. To get a quick gold loan with minimal documentation, apply online now.