Things you Should Know Before You Go for a Gold Loan

Things you Should Know Before You Go for a Gold Loan

Gold loans have been in the Indian market for centuries. The gold loans are among the oldest loans and have several benefits like instant cash to easy retrieval. However, you must cross-check a few things before going for a gold loan. These are:

See Also: How to Get Gold Loan Fast?

1. Rate of interest

Although gold loans are cheaper than personal loans, the interest rates vary across institutions. Depending on where you avail the loan, cross-check interest rates.  

As gold loans are offered by banks, NBFCs (Non-banking financial companies), lenders, gold jewelers and so on, you must ensure you get the best quote before giving away the precious metal.

2. Credibility of the lender

Another important aspect is the credibility of the lender who is offering the gold loan. Look at banks and NBFCs. Check for the lending history and authenticity of the lender and make sure you are clear with the terms and conditions of the agreement before signing the contract.

3. Loan amount

In the case of gold loans, no lender will offer 100%. The loan amount ranges from 60% of the gold value up to 75%. This percentage is decided based on:

1. The purity of gold
2. The prevailing rate of gold
3. Lending institution’s policy

Gold loan amount is calculated in two ways. One way is to take an average of the last two week’s gold prices; the other way is to consider the present day gold price based on weight and purity of the gold.

4. Repayment of gold loan

A critical aspect of gold loan is the repayment process. As gold loan is a secured loan, the gold you keep is the security. The lender is at no risk as there are no chances of a default. Going for a gold loan is an attractive option in terms of instant money at lower interest rates. However, you must go for a gold loan only if you are sure to get back the desired amount within the stipulated time frame.

Once you have repaid the loan along with interest, you can claim the gold kept as security with the lender. However, if you fail to do so, you may end up losing the precious gold item. Opting for a gold loan is advisable only if you are sure of repaying the borrowed amounts within the given time frame.

5. Tenure of gold loan

Gold loans are short-term loans ranging from 12 to 14 months. You must ensure the time-frame is within your limits or you may end up losing your gold.

6. Gold Loans are versatile

You can pledge your gold jewelry, gold bars and gold coins. Depending on the purity of pledged gold, the loan amount gets sanctioned. Gold bars and gold coins have a higher purity vis-a-vis gold ornaments. In case of ornaments, only the weight of gold is considered. Embellishments like stones and gems are not considered.

7. Insurance of pledged gold

A lot of lenders have come up with provisions for securing and insuring pledged gold. In case of a robbery or theft, you get compensation.  

8. Hidden costs and fee

While this totally depends on your lender, several banks charge a nominal percentage which is 1% of the loan amount as processing fees. You can check with your loan provider before opting for the gold loan on the terms and conditions. 

Gold loans are the fastest and easiest loan types. In case you need instant money, a gold loan can be your go-to option as minimal documentation is required.

See Also: How Gold Loans Help You Improve Your Credit Score?

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