Gold loans are a type of secured personal loans. The loan is offered against the mortgage of gold assets. When you mortgage your gold assets, the lender evaluates the value of the mortgaged assets. Based on the value determined by the lender, and the loan amount is calculated. Gold loans help you meet any financial requirements that you face. The loan is offered within the shortest possible time. Moreover, since the loan against gold is secured against the assets that you have a mortgage, the interest rates are low.
Though gold loans can be availed easily, you should be careful when availing the loan. Here are five essential things which should be considered when you are applying for a gold loan –
The amount of loan that you can avail
The first thing which you should find out is the loan amount which the lender is willing to offer. Lenders evaluate the value of Gold independently when determining the loan amount. The evaluation depends on the weight of gold valuables that you have mortgaged and their purity. The purer the Gold is, the higher would be the loan amount which you can avail. Moreover, if your gold jewellery has stones and other precious metals in its composition, the cost of such items would be excluded. Only the value of Gold would be considered for calculating the loan amount. Up to 75% of the value of Gold that you have mortgaged would be offered as a loan.
Types of gold assets which you can mortgage
Lenders accept gold jewellery, ornaments, coins, bullion and any other kind of gold valuable that you have as collateral for the loan.
Custody of the mortgaged Gold
Unlike in a loan against property wherein you can retain your property, in a gold loan, your gold assets remain with the lender. Once you mortgage your Gold, the lender would take custody of your gold valuables and keep them in a secured place. You would be able to get the possession of your valuables only when you clear the total outstanding amount of the loan.
Repayment options
A gold loan offers a variety of repayment options so that you can repay the loan at your convenience. The available repayment options include the following –
EMI repayments – this is the conventional mode of repaying the loan wherein you pay off the loan in Equated Monthly Instalments. Interest-only
EMIs – under this option, only the interest on the loan is paid in EMIs over the repayment tenure. The principal amount of the loan is paid when the loan tenure ends. Bullet repayments – under this option, no EMI is paid throughout the loan. The total interest and the principal amount of the loan are paid at once when the loan tenure comes to an end.
When you avail a gold loan, consider the repayment options available and then choose the most suitable one.
Comparison between lenders
Gold loans are popular, and therefore they are offered by banks and non-banking financial institutions. However, before availing a loan, comparing is necessary. You should check the loan amount offered by different lenders, the repayment options, and the interest rate. Choose a lender which provides the funds that you require at the lowest interest rates.
Bank or NBFC :
Deciding and choosing between the lender is a difficult task.
Going from a third party can turn out to be a little risky at times.
The interest rate offered by a bank is less in comparison to an NBFC.
However, NBFC offers other advantages over a bank such as fast disbursal of loan and less documentation.
A contrast between Gold Loan and Credit Score
Well, many lenders and borrowers are disturbed with the credit score. There is so much happening already, and a credit score acts as another barrier.
Gold Loan is the best form of loan option which remains unaffected by credit score. You can avail a gold loan even if your credit score is low.
Safety of the Gold Jewels :
This is the most crucial question which may burst up in our minds.
The gold ornaments are very precious. It is essential to ensure that the gold jewels should be kept safe. We can understand that there are various emotions attached to these jewels. The gold jewels will be locked in the lockers, and there are CCTV cameras. A 24×7 surveillance plan is taken into action, which leads the bare minimum chance for any theft to take place. In case of any robbery, the market value equivalent to the Gold will be given back to you.
A word of caution :
No doubt gold loan is considered to be the most effective form of investment. However, people need to be cautious and confident enough. Apply for a gold loan only if you are sure enough that you can repay it on time. On the other hand, you may lose your gold ornaments. Therefore, making a timely payment is a must.
The purity of Gold:
As far as the purity of the Gold is considered, this holds a critical point. There is no compromise in terms of quality and purity of Gold. For example, coins and Gold hold more value as they come with high purity.
Please make a note in case there is gold jewellery studded with precious stones, only the value of real Gold will be considered.
Let us take an example :
Suppose you have 20 karats of gold jewellery, out of which 11 gram is pure Gold and rest 3 gram is made up of silver. Therefore, we can conclude that at the time of evaluating the jewellery, only 10 gram will be considered.
Gold loans would help you meet any financial need that you have. However, always consider the points mentioned above before availing the loan so that you know how your loan works. I hope we were able to give you enough insights related to the gold loan. Make a wise choice and take a calculative decision.
