Major Points to Keep in Mind while Availing of a Gold Loan
Gold loan is one of the easiest ways to access funds to mitigate urgent personal or business requirements. This secured loan segment has recently become a highly favoured financing option owing to the easy to meet eligibility requirements and high-value loan quantum. Anyone with gold jewellery, coins or even bars can apply for this advance.
According to RBI data, the outstanding loans against gold have almost doubled to Rs.60,464 crore in the fiscal year 2021. The loan amount stood at Rs.33,303 crore last year. A recent report states that the organised gold loan market is poised to grow at 15.7% annually.
There are numerous financial institutions that offer loans against gold. Thus, before opting for a gold loan scheme, you need to consider a few crucial factors.
Major points to consider before applying for a gold loan
With the following points in consideration, intending borrowers can choose the right gold loan scheme as per their requirements:
High-value loan quantum
The loan amount that a lender would approve depends on the valuation of the gold jewellery submitted as collateral. The current loan-to-value ratio was capped at 75% of the overall value of gold.
- The RBI has recently increased this cap to 90% of the pledged gold’s total value.
However, the LTV ratio for a gold loan varies from lender to lender and ranges typically between 65-75%.
Therefore, individuals should compare and check across lenders to enjoy gold loans with a higher LTV ratio.
The interest rate is another crucial point to consider before opting for a gold loan.
Notably, gold loan interest rates depend on the concerned lender. This is because the loan amount, LTV ratio, repayment tenor and various other assessment criteria vary widely across lenders.
For instance, a higher loan amount will mean more risk to the lender. Therefore, a gold loan with a higher LTV ratio will come with an increased interest rate.
Intending borrowers looking for low-interest rates on loans against gold should conduct necessary market research before applying.
Lending institutions usually levy a low processing fee for gold loans.
Borrowers should, therefore, check the fee structure of different lenders before choosing one. This will allow them to reduce the total cost of the loan.
Loan repayment structure
The repayment tenor for a gold loan usually stretches up to 24 months, after which individuals can opt for its renewal.
Apart from the regular monthly instalments, individuals can also opt for an easy and convenient repayment structure. They can choose to pay the interest amount periodically and the principal amount at the end of the tenor. Alternatively, they may also pay the loan interest upfront and the principal amount later on.
Thus, borrowers can select the repayment strategy that best suits their financial health. For instance, the EMI structure will be more convenient for salaried individuals as they come with a steady monthly income. However, a non-EMI structure would suit self-employed individuals.
Credibility of the lender
Gold is a highly valuable asset. Therefore, individuals should be cautious while pledging their gold as collateral.
Before applying for a gold loan scheme, they should carry out a careful background check of the lending institution. In this regard, customer reviews of different lenders should also be taken into account.
To ensure the maximum safety of the pledged gold, one should always opt for credible lenders.
Apart from these, there are a few factors that borrowers must take note of before proceeding to apply for a gold loan.
Documents required for gold loans
To facilitate the process of gold loan application, individuals will need to submit certain necessary documents. These include:
- Government identity proof such as Aadhaar card, PAN card, passport, voter ID card, or driving license.
- Address proof documents such as ration card, voter ID card, passport, electricity bill, water bill, or a letter from any authorised individual.
In addition to these, one might have to submit documents related to income at later stages.
Benefits of opting for a gold loan
Financial emergencies can be quite unsettling. However, a loan against gold can be a suitable option to deal with such emergencies without having to strain one’s income and savings. A gold loan comes with a hoard of benefits, such as:
Zero end-use restrictions
Gold loans do not include any end-use restrictions. A borrower can use the funds to meet expenses arising from medical emergencies, pay for overseas education, foreign trips, business or home expansion, and more.
- Quick access to the substantial loan amount
With a gold loan, individuals can enjoy easy access to funds that can help them address urgent requirements faster.
Other major advantages of gold loans include:
- Easy repayment options
- Lower interest rates as compared to personal loans
- Foreclosure and part-prepayment option with zero or negligible charges and more.
Borrowers today can apply for online gold loans from the comfort and convenience of their homes. However, they should check the eligibility criteria for gold loans and interest rates before applying.