The gold loan outstanding was Rs. 62221.07 crore till 18th June 2021. The Reserve Bank of India revealed that this credit medium in India has boomed since 2020. The popularity of loans against gold in India has always been high considering the easy availability of collateral (gold), the flexibility of fund usage and likes.
However, individuals should always be careful of certain factors while opting for gold loans in India. It will help them ensure a seamless borrowing experience.
5 most important factors to consider while availing of gold loans
Following are a few essential factors that individuals need to consider while opting for a gold loan:
- Gold purity
The purity of gold articles plays a vital role in deciding the loan corpus. Lenders usually accept gold articles of 18K to 24K. Depending on the carat measurement, the loan amount varies. For instance, gold articles of 24 carats will fetch a higher sum than 18 carat-gold jewellery and vice-versa.
Alongside purity, one should also know that gold loan LTV is capped at 75% by the RBI. However, the maximum loan amount threshold varies as per the choice of the lender.
- Interest rates
Gold loan rate of interest is another factor that determines the affordability of this credit instrument. Since these rates vary, it is better to compare lenders to secure the most competitive interest rate.
Lenders levy the gold loan interest rates after considering several micro and macro-economic factors such as loan amount, gold purity, repayment capacity of applicants, and rate of inflation. However, being a secured credit, the interest rate on credit against gold remains lower than its unsecured counterparts.
- Additional charges
Even if a lender offers one of the lowest interest rates on a gold loan, the additional charges will increase the borrowing cost of this advance. Lenders impose additional charges for part-prepayment and foreclosure.
Thus, applicants must know these additional charges beforehand to estimate their overall borrowing cost and select a financier accordingly.
- Repayment options
Gold loans accompany multiple repayment options that allow borrowers to choose one as per their financial capacity. Following are the gold loan repayment options one can select from:
- Regular EMI option
- Payment of interest upfront while availing the loan and repay the principal before tenor ends
- Periodic interest payment and principal repayment before the tenor ends
Besides, individuals also need to consider that the repayment tenor of a gold loan is short and, thus, suitable for most short-term financial requirements. Individuals can expedite the repayment further with a part-prepayment facility.
It also helps reduce the interest burden. NBFCs like Bajaj Finserv also provide a part-release facility where borrowers can repay a lump sum to partially releasing their pledged gold items.
- Turnaround time
Individuals resort to gold loans, especially during financial emergencies, thanks to their short turnaround time. Depending on the lending institutions, the loan approval and disbursal time vary. However, the average loan processing is quicker when compared to other credit options.
Besides online application facilities and minimal documentation, top financiers also offer doorstep facilities wherein the representatives of the lender visit applicants’ homes or offices to initiate the loan processing.
Starting from gold appraisal to loan disbursal, everything takes place at a borrower’s convenience.
Following is the process to avail a gold loan in India:
- Open a browser and search for the best loan against gold offers
- Get the loan information and read its terms and conditions
- Apply online after finalising a lender of your preference
- Enter the relevant details like personal, financial, employment details and submit the online application form
On receiving a gold loan application, a representative from the lender’s end will contact you for further processing. After documents verification and gold appraisal, they will disburse the amount. This process takes a few hours to complete, making it a go-to financing method in monetary emergencies.
Alternatively, individuals can also apply offline to avail of a gold loan in India by visiting any nearest branch office of their preferred lender.
These are the most crucial factors individuals need to consider while opting for a gold loan in India. At the same time, they should also check how a lender preserves the pledged gold for the entire tenor to ensure its security.