What You Need To Consider Before Applying For Gold Loan In India?

gold loan

A gold loan is a popular option among borrowers to manage a temporary financial crunch. It is a loan against gold in which the borrowers pledge their gold ornaments with the lender until the total loan amount is repaid. Gold is considered as a precious item for investments as it provides substantial capital appreciation over time. It is found in almost every household of India, and thus, it can help you in obtaining funding. 

Cash for gold is provided by various non-banking financial institutions to help people meet their emergency financial needs. Such loans also come with lower interest rates and minimal paperwork, which make them a prudent choice over personal loans. Also, since it is a secured loan, lenders do not evaluate the credit score and repayment history to disburse this loan. You can easily enquire about these loans either online or by visiting the concerned branch. All you need to do is search ‘gold loan near me’ on Google and find the branch nearest to you. 

However, here are a few factors you must consider before applying for a gold loan in India. 

1. Amount of loan

First, you need to know how much loan amount you can get. As the borrower keeps the gold items as collateral with the lender, the loan amount usually depends on the valuation of the gold. Lenders check the purity and weight of the gold to estimate its value. It is not possible to avail 100% loan amount against the value of gold. Typically, lenders give up to 75% of the gold value as a loan only.

2. Interest rates 

One of the advantages of gold loans over other loans is that it can be availed at a lower interest rate, which may vary between 12%-27% depending on the type of lender. Lenders usually determine the interest rates to be charged to the borrowers based on several factors, such as loan amount, loan tenure, LTV ratio, and more. Thus, before you shortlist a lender, make sure you compare the interest rates charged by various lenders near you. 

3. Loan tenure 

The duration of the gold loan is another significant factor that must be considered before applying for the loan. Gold loans are typically short-term loans with tenure ranging between 7 days to 3 years. So, for the timely repayment of the loan, make sure to choose the loan tenure that suits your repayment needs and cash flows. 

4. Repayment options 

NBFCs provide different options for the repayment of the gold loans. There are mainly two schemes – EMI and Bullet scheme. You can select either of the two facilities depending on your cash flows and repayment capacity. 

Under the bullet scheme, the borrowers can pay the entire interest amount upfront and pay the principal amount at the end of the term. For example, if the total loan amount is Rs. 1,00,000 and the interest amount is Rs. 10,000, the borrower will get the loan of Rs. 90,000 only. And at the end of the loan’s tenure, you have to pay the principal, i.e., Rs. 1,00,000 to the lender. 

The second repayment option is the EMI scheme, which is common in all NBFCs. In this, the borrower has the choice to repay the interest as equated monthly instalments during the loan term and principal amount at the end. 

5. Processing fees

Before you apply for a loan against gold, make sure to check if there is any processing fee that may come with the loan amount. The processing fee is usually an expense incurred by the lending institutions while disbursing the loan amount. This amount ranges from nil to 2% of the loan. It is an important consideration, as in the case of the high loan value, the processing fee can also be a significant amount. 

6. Purity and valuation of gold 

The purity and valuation of the gold item pledged also plays a major role in determining the loan amount. You can give any gold piece, such as jewellery or coins as security to the lender. Higher the purity and value of the, higher will be the amount of loan.

Bottom line

Gold loans are one of the most lucrative options to cover unexpected financial needs. Hence, it is necessary to consider the above pointers before applying for a gold loan with a particular lender. 

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