A gold loan is one of the best options for getting funds in times of financial emergency like a deficit of funds for wedding expenses, medical expenses or for travel etc. Getting a gold loan is simple, and there are no restrictions on end-use of gold loans as well. Also, you don’t require any income proof or CIBIL to get a gold loan. While getting a gold loan is so convenient, you must carefully evaluate your choices for a gold loan. Here are some common mistakes that you must avoid while applying for a gold loan.
5 Common Mistakes to Avoid When Applying for a Gold Loan
- The credibility of lenders: A gold loan is a secured loan taken against the security of gold as collateral. The amount of gold loan offered is less than the value of the gold. Thus, borrowers have more risk when it comes to gold loans. It is, therefore, crucial that borrowers check the credibility of the lenders. They must do a background check about these institutions. It would be better if you take a loan from the reputed banks and NBFCs which are approved by RBI to avoid any risk of default.
- Comparing gold loan rates: Never decide about the lender for getting a gold loan in a rush. Before finalising the financial institution, you must evaluate all the choices and do detailed research on the market rates and compare the interest rates and other charges like processing fees, legal charges etc. You must not agree with the first price that is offered by the financial institution. It is always a good idea to negotiate with different banks/institutions to get the best price for a gold loan, and if you apply for the loan by doing research, you can always get attractive interest rates.
- Repayment structure: There are various methods to repay the gold loans such as Bullet Repayment, EMI facility and Overdraft. Using these methods, you can either pay the interest on gold loans every month and repay the principal amount on gold at the end of tenure. You can also pay both interest and principal amount every month like every loan. However, it would help if you clarified with your lending institution about the repayment methods available with them to choose the lending institution as per your requirement.
- Loan to Value ratio: Understanding how lending institutions evaluate the gold and how much gold loan they provide is an essential factor for consideration. While most of the banks may provide up to 75% of the value of the gold. There are some financial houses which may provide gold loan upto 90% of the cost of gold. Also, the gold rates for the evaluation of gold varies from bank to bank. Some may consider daily rates of gold. Other institutions may consider weekly gold rates in the assessment of LTV. You must, however, have a precise idea about the benchmarks used for determining the LTV of a gold loan.
- Value of gold: It is necessary to understand that banks usually prefer to offer gold loans against gold ornaments as people have a high sentimental value attached to them. Mostly, banks provide gold loans if the gold ornaments have 18 to 22 Carat of gold. The value of gemstones is however, not considered. While they may consider gold coins, however, these have certain specifications. A gold loan may be provided against gold coins if they are 99.99% pure and have no weight exceeding 50 gms. Also, they don’t offer gold loans against gold bars etc.
Summary:5 Common Mistakes to Avoid When Applying for a Gold Loan
A gold loan is one of the best options for getting funds in times of financial emergency like a deficit of funds for wedding expenses, medical expenses or for travel etc. While getting a gold loan is so convenient, you must carefully evaluate your choices for a gold loan.
- A gold loan is a secured loan taken against the security of gold as collateral. The amount of gold loan offered is less than the value of the gold.. It is, therefore, crucial that borrowers check the credibility of the lenders.
- Before finalising the financial institution, you must evaluate all the choices and do detailed research on the market rates and compare the interest rates and other charges like processing fees, legal charges etc.
- There are various methods to repay the gold loans such as Bullet Repayment, EMI facility and Overdraft. However, it would help if you clarified with your lending institution about the repayment methods.
- Understanding how lending institutions evaluate the gold and how much gold loan they provide is essential. While most of the banks may provide up to 75% of the value of the gold. There are some financial houses which may provide gold loans upto 90% of the cost of gold.
- It is necessary to understand that banks usually prefer to offer gold loans against gold ornaments as people have a high sentimental value attached to them. Mostly, banks provide gold loans if the gold ornaments have 18 to 22 Carat of gold.
