Almost all Indian households have gold investments, and the majority are in jewellery form. Resultantly, pledging that gold to avail funds is a common borrowing trend in this country. Studying this, the World Gold Council estimates that India’s gold loan market will grow at 15.7% CAGR to reach Rs. 4.617 trillion by the end of March 2022.
Although the popularity of this credit form is unquestionable, individuals need to remember certain pointers to ensure a smooth repayment.
Things to know before availing of a gold loan
Loan against gold is one of the best borrowing options for short-term financial needs due to their unrestricted end-use, simple eligibility and likes. However, to leverage its unique features, individuals need to consider certain factors mentioned below:
- Rate per gram
Also known as LTV, the rate per gram offered decides the gold loan corpus. The Reserve Bank of India capped gold loan’s LTV to 75%. It means if one pledges gold articles worth Rs. 5 lakh, lenders can extend up to Rs. 3,75,000.
Note that the gold price fluctuates almost every day and a lender disburses a loan as per the current market valuation. Lenders also decide a loan amount after checking the tenor and repayment capacity of applicants.
Moreover, individuals can utilise various online gold loan calculator and enter the details of gold items to check the maximum loan amount they are eligible for.
- Interest rates
This applicable interest rate determines the affordability of a gold loan or any form of credit for that matter. Although the interest rates, in this case, are affordable due to their secured nature, the following aspects factor in while lenders decide the rate:
- Loan amount
- Gold purity
- Repayment tenor
- Current market price of gold
- Rate of inflation
Hence, before applying for this advance, individuals should know the total gold loan interest payable to ensure smooth repayment.
They should also compare different lenders to avail the best interest rate against their borrowing.
- Processing time
Typically, the processing time of gold loans is short due to their minimal documentation. Selected financial institutions like Bajaj Finserv also offer doorstep facilities wherein representatives collect the gold loan documents from an applicant’s address.
Following is a document checklist of gold loans:
- Identity proof
- Address proof
- Passport-sized photographs
Besides paperwork, leading financiers also complete the gold appraisal process at an applicant’s address. It allows borrowers to avoid the hassles of visiting a branch physically. The online application provision also reduces the processing time further.
- Repayment options
Irrespective of the loan size, on-time repayment is essential to clear the debts faster and upkeep one’s credit profile. However, a gold loan accompanies flexible repayment options as follow:
- Pay the interest upfront and principal before the tenor ends
- Pay interest periodically and principal later
- Regular EMIs
Individuals can choose any of the options above while servicing gold loans as per their repayment capacity. Along with these, there is a part payment and foreclosure facility available as well.
- Gold release facility
Individuals can make a lump sum payment before the tenor ends, and lenders release gold articles partly that are equivalent to the amount paid. Besides, selected financiers also offer top-up loans to eligible candidates.
- Gold security
The first thing that comes to one’s mind before applying for this credit is the security of deposited gold. However, reputed financiers ascertain the gold security by adopting some effective security measures. For instance, lenders generally keep the deposited gold in a vault and place it in a room with CCTV cameras, a motion detector, and other advanced facilities.
Furthermore, selected NBFCs also provide a complimentary gold insurance plan for the tenor. It financially protects gold articles against misplacement and theft.
- Additional charges
Like other debts, a gold loan also entails several additional charges that individuals need to pay as and when applicable. Thus, applicants must select a lender that levies nominal to zero charges on part-prepayment, foreclosure and likes.
The processing fees of gold loans range up to 2% of the amount. Selected financiers also charge a flat fee. However, lenders also often waive off the processing fees during the festive season or such occasions. If you apply for a gold loan during such a period, you can avoid paying that fee.
After considering the abovementioned factors, individuals can choose the best gold loan offer as per their suitability. Doing so will help them to repay the credit faster and improve their credibility as a borrower accordingly. Moreover, they should also read the fine print of the loan to stay aware of the terms and conditions associated with a loan offer.
