Finance

5 things to consider before applying for a gold loan

A gold loan is a secured and easy way to get funds during a cash crunch or an emergency. Thanks to multiple banks and NBFCs offering such credit facilities, you can get access to an affordable gold loan scheme. This way, you can meet your short-term goals or pay for an emergency expense with ease. However, it is best to avoid taking a gold loan from goldsmiths or local shops. This may lead to unfavorable terms, lack of security for your collateral, or lack of transparency about valuation and charges.

 

Instead, avail of the best gold loan that meets all your needs from a bank or an NBFC, both of which offer much more security, repayment flexibility, and other facilities. Here are some tips that will guide you through the things you need to consider before applying for a gold loan. Doing so will help you make better decisions in opting for the best out there.

 

Check the reliability of the lender 

Avoid taking a loan from unrecognised lenders or local jewelers to protect yourself from fraud and misuse. Before finalising on a lender, check the security or safety protocols they follow to keep your gold ornaments or coins safe. It is best to take a gold loan from a reputed and trustworthy lender so you can rest assured. Secondly, a reliable lender also has accurate evaluation processes to assess the gold value you offer as collateral. This is crucial in getting the right loan amount for your needs. Normally, you may get a lower interest rate from a bank but a higher loan amount from an NBFC. However, it is best to do your market research to select the right scheme for yourself.

 

Evaluate your gold collateral

The loan amount offered to you depends on the purity and weight of your gold. Most lenders don’t accept gold of below 18 carats. The quality and quantity determine the gold value. However, the valuation of the gold loan may differ with each lender. A lender may consider the current prices or the average of 2 weeks’ gold price for valuation. Secondly, check what kind of gold is accepted by your shortlisted lenders. Usually, you can get a loan against ornaments and coins, but not bars. Thirdly, remember that the value of other precious stones is not considered by lenders. So, if the gold jewelry you pledge also contains diamonds and other gems, this will not affect the evaluation.

 

Assess the loan amount, interest, and other charges 

Most of the financial companies offering gold loans give you a maximum of 75% LTV on the market value of your gold. However, few lenders may offer you up to 90% LTV. The loan amount also depends on how the lender calculates it. So, keep all this in mind beforehand so you can get the finances you need.

 

Interest rates play a major role in determining how easy repayment is for you. So, search for a lender offering you the best gold loan at an affordable rate. Along with this, consider the documentation, processing, valuation and other fees charged. Some lenders may also charge a percentage of the loan amount as part-prepayment or foreclosure fees. Take all these factors into consideration before zeroing on a suitable gold loan scheme.

 

Explore the repayment options available 

As a gold loan is a short-term loan, financial institutions usually allow you a repayment period of up to 36 months. Top lenders also offer you flexible repayment options. For example, you can choose to pay interest monthly and the principal at the end of the tenor or pay the interest upfront and the principal amount later. You can also opt for the standard EMI option. Choose one that best matches your finances.

 

Evaluate the consequences of default 

Remember that a gold loan is short-term debt. So, plan your finances well to repay the loan amount. Failure to do so gives the lender the right to seize your gold ornaments or coins and auction them to recover the loan amount. As it is a secured loan, your gold articles act as collateral and security for the lender in case of default. Thus, take a loan only when required after planning and evaluating your needs and budget.

Now that you know all the things to consider before applying for a gold loan, choose the best gold loan scheme from the options available. An attractive one you can consider is the Bajaj Finserv Gold Loan. It offers a high loan value of up to Rs.20 lakh with accurate evaluation using a carat meter and world-class safety protocols. With competitive interest rates and facilities like part-prepayment at no charge and flexible repayment options, it is worth opting for. You also get a part-release facility where you can withdraw some of your gold ornaments in case you need them for any occasion. Apply online to get a quick gold loan and meet your needs with ease.

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