Gold has always been associated with good fortune in Indian households. However, more individuals are coming out of the prevailing stigma attached to liquidating the yellow metal post the pandemic-driven crisis.
This is evident from the rise in gold loans outstanding by Rs.33,308 crore since March 2020, as per RBI data.
In times of unforeseen financial crises, opting for a gold loan online comes as a more viable option than other financial products with more demanding terms and conditions.
However, individuals considering their gold jewellery holdings as a resort to meeting cash crunches must first consider a few factors affecting gold loans.
Top 7 things to look out for before applying for a gold loan
Individuals should consider the following aspects of a gold loan before applying:
The foremost factor to consider when opting for a loan against gold is the available funding against your collateral. Financial institutions sanction these funds based on 2 primary factors.
These are the prevailing market rate of gold and the RBI-mandated LTV ratio. The former involves evaluating collaterals based on their purity. Generally, individuals need to submit gold items with a purity of 18K-24K to receive substantial value against them. Some lenders even disqualify applications against jewellery items with lesser purity.
Additionally, the RBI has extended the previously 75% LTV ratio for gold-backed loans to 90%. As a result, borrowers can avail of higher loan amounts against their pledged jewellery than before.
Most lenders providinggold loans onlineoffer flexible repayment options. Besides the traditional EMI payments, borrowers can opt for 2 other popular methods.
They can choose to pay the interest upfront and the principal amount over the course of the remaining tenor. Alternatively, they can opt for monthly or quarterly interest payments and put aside the principal to be paid at the tenor’s end.
The last 2 methods can be highly convenient for individuals who do not have regular cash flow. However, notwithstanding the repayment structure, ensure timely payments to avoid risking a default.
The part-payment and part-release facility can be extremely beneficial for gold loan borrowers. It allows individuals to make a lump-sum repayment lower than the total outstanding and release pledged gold items worth the equivalent amount.
Here, applicants should check the applicable part-payment charges levied by their lender. Most leading lending institutions usually offer this facility free of cost.
Customer support service
Along with the availability of gold loans online and involved doorstep services, it is also important for applicants to look into the NBFC’s customer supportfacility before finalising a lender.
Most financial institutions provide instantaneous support and solutions via representatives online. Some also offer a helpline number to cater to customer queries. However, it is the borrower’s prerogative to check how effective these communication channels are before signing up for a loan.
Usually, gold loan finance is a short-term funding solution. Despite the flexibility in repayment, most lending institutions offer compact tenors ranging over 1-4 years. This can be beneficial in reducing the interest outgo. However, a short tenor can overburden borrowers with hefty instalments in case of a high loan amount.
Here is a simple example to help you picture this scenario. If an individual borrows Rs.6 lakh gold loan online at 12% interest for 3 years, he/she will incur a total interest of Rs.1,17,424 with EMIs of Rs.19,929.However, reducing the tenor to 1 year brings the total interest down to Rs.77,859 against EMIs of Rs.28,244.
Therefore, applicants must always choose a suitable gold loan scheme depending on their financial standing.
Rate of interest
Different loan providers offer varying interest rates against gold-backed loans. This is why individuals must always make sure to compare the policies of different lenders when opting for a gold loan online. Accordingly, they can choose a loan scheme offering their most suitable interest rate.
Besides the interest rate, there are other charges involved, such as processing fees, documentation charges, etc. Enquire your lender about these before going ahead with the gold loan application process, as these can add to your total borrowing cost significantly.
Additionally, look out for foreclosure charges and late penalties.
An extremely crucial factor to note here is that leading NBFCs offer funds against gold jewellery items only. Generally, lenders do not accept other types of gold items, such as gold bars and coins, as collateral.
Studded jewellery items like a gold necklace with gemstones or diamonds are also not accepted. This is because these precious stones add substantially to the ornament’s total weight, and often the actual gold content is too low to meet gold loan eligibility. Therefore, individuals must make sure to pledge only pure gold ornaments.
Once aware of the eligible collateral type, individuals must also examine the security protocol their chosen lender follows regarding the storage of pledged items. Prominent financial institutions store gold items under high surveillance and also offer 100% coverage against any damage or loss.
Besides the above factors, individuals must also look out for additional facilities offered by lending institutions. Leading NBFCs like Bajaj Finserv offer attractive benefits like top-up loans exclusively to builders and traders.
Additionally, they assure customers of ultimate collateral safety by fully insuring them against any damage, burglary, or loss. Such offering should always be a borrower’s priority to ensure security when availing of a gold loan online.