HomeBusiness4 important things to keep in mind before availing a Gold Loan

4 important things to keep in mind before availing a Gold Loan

Both banks and non-banking financial companies (NBFCs) offer gold loan. These secured loans require minimum paperwork and have low-interest rates compared to unsecured loans

A gold loan is one of the best options to raise funds for meeting emergency cash needs. The best thing about availing of a gold loan is that you don’t need a good credit score or any income proof to avail of it. Anybody above the age of 18 years can avail gold loan without any hassle. This loan is among the cheapest options to get immediate cash.

The greater the purity of gold, the greater the value of the loan number and pass-through gold loan. Borrowers need to possess the necessary KYC (Know Your Customer) documents required by the lender to avail of a gold loan seamlessly.

Lenders generally lend up to 90 % of the gold’s worth after verifying for purity as well as weight. 

What kind of gold may you put up as a pledge

The better the purity of gold, the more significant the value and loan amount. Most lenders want a minimum purity of 18 carats. If you’re going to take out a loan against your jewellery, the lender will not consider the worth of the jewels and stones. He’ll care about the gold. Furthermore, many lenders will not lend on gold bars. They do, however, take coins with a fineness of 99.99% and a weight of up to 50 grams.

Banks or non-bank financial companies 

The first step is to stay away from jewellers and other small businesses. They are unregulated and have the power to impose unfavourable terms and conditions. Fraud is also a concern. For gold loans, borrowers choose between non-bank financial institutions and banks.

A few non-banking financial companies like Bajaj Finance Limited within organized players are offering the best gold loan at an attractive rate of interest. These lenders are much more liberal in pricing your gold and may even provide flexible repayment alternatives compared to banks. For example, assume that a bank or a non-bank financial company like Bajaj Finance Limited lends you 75% of the gold’s worth as a loan. Borrowers can avail of a gold loan from the lender up to Rs. 1 crore.

While non-bank financial companies may offer a more significant loan, banks give lower interest rates on gold loan schemes.

Flexible options for repayment

Bajaj Finance specializes in gold loans providing a variety of repayment choices for borrowers. For example, a borrower might choose bullet payment in addition to the average equivalent monthly installment (EMI). 

The borrower can still pay interest as an EMI even during the loan term and then spend the principle at the end. That is a regular occurrence in the banking industry.

Gold loans should only be used to address short-term cash flow issues. As per intermediaries, they should not pay a high cost (such as a wedding or college fees) or construct another asset. As a result, it’s advisable to go with a standard EMI plan. The alternative repayment methods are better for business owners that don’t have consistent cash flow.

Charges and other regulations

Prepayment is usually not allowed on gold loans. Several banks have the authority to collect up to 1% of the outstanding loan. As a result, lenders might impose appraisal costs in addition to processing fees.

Gold prices are currently hovering around an all-time high. If gold prices increase in the future, the borrower may require the borrower to put up additional gold as collateral. The concept is that the loan should be for 75% of the gold’s worth.

In addition, borrowers have the authority to sell the gold if the borrowers fail to return the loan on time. But only after numerous reminders were achieved.

Gold loans can help you get through a short-term cash flow crisis but bear in mind that they are regulated by the Reserve Bank of India, maintaining the loan term short.

Characteristics of Gold Loans 

●     Tenor: A gold loan’s minimum term might range from 3 to 6 months. A gold loan has a maximum duration of four years.

●     Interest Rate: The gold loan interest rate begins at 10.50% and may go as high as 19%. 

●     Late Payment: Missing a payment on a gold loan might result in a higher interest rate. Late payments may incur a cost from the lender. The amount of the charge varies from borrower to borrower.

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