As a popular credit option in India, the growth in the organized gold loan market is further enhanced by the several measures taken by leading financiers and the RBI’s effort.
This is all the more attractive for individuals to liquidate gold and meet their diverse financial needs. As per a recent report, the gold loan market anticipates growth at an annual rate of 15.7% and is expected to reach 4.617 trillion rupees in FY22 from 3.448 trillion in FY20.
Though liquidating gold seems promising, individuals need to consider certain factors to maximize the benefits offered by gold loans.
Four important things to consider before taking a gold loan
The amount sanctioned to an individual entirely depends on the valuation of the gold deposited as collateral and a lender’s LTV (loan-to-value ratio). LTV refers to the amount a borrower can get against the gold pledged as collateral.
This LTV ratio depends on several factors, including the selected repayment option and applicable regulatory cap. As per the RBI regulation, gold loans sanctioned on and after April 2021 will fetch an LTV ratio up to 90%. Hence, borrowers must consider the loan amount beforehand and plan their expenditure accordingly.
The interest rate set on loans against gold varies from one lender to another and depends on several factors. Lenders usually conduct a risk assessment of the borrower’s profile, check the loan amount, tenor, and repayment option selected, and finally decide on the interest rate.
Also, some lenders tend to impose higher interest rates on a higher loan amount. However, individuals must remember that though a borrower’s credit score does not play a significant role in gold loan eligibility, a good credit profile helps one secure a low gold loan interest rate.
That being said, individuals must remember that being a secured financing option, a gold loan comes with a low-interest rate than other unsecured financial products. Subsequently, they must check with other lenders to secure the best gold loan scheme with a lower interest rate.
A loan against gold comes with a number of repayment options. These include,
- Periodic interest payment: In this repayment option, individuals can pay interest in EMIs during the loan tenor and principal at the end.
- Periodic EMI payment: It is the most common gold loan repayment option. Here, individuals repaythe loan amount (inclusive of principal and interest)till the end of tenor.
- Partial repayment: In this repayment mode, borrowers can choose to make partial repayment during loan tenure and opt for pre-closure. However, borrowers must be aware of the pre-closure policy of respective lenders and choose this repayment option accordingly.
- Bullet payment: Another popular gold loan repayment option is bullet payment. Here, individuals can repay both the interest and principal at the end of tenure in a single shot.
Since there are different repayment options, individuals must carefully select lenders before settling for a particular mode of loan repayment. Selected NBFCs like Bajaj Finserv offer the best gold loan with easy repayment solutions and a hassle-free loan availing experience.
Here, individuals must tally these charges levied by different financiers. Also, they must read the internal policy and check all charges to avoid future discrepancies.
Apart from these, there are other factors that individuals must keep in mind, such as gold purity. Individuals must know that while deciding on a loan amount, lenders evaluate purity. In most cases, lenders demand a minimum of 18-carat gold purity. Here, lenders consider only the weight of the gold pledged (which does not include the weight and value of stones and gems).
The above-mentioned discourse talks about important aspects borrowers must consider before taking a gold loan. Apart from these points, factors like gold security, disbursal time, and tenor play a crucial role in ensuring a hassle-free gold loan experience. Therefore, individuals must read such information carefully to utilise their idle assets judiciously.
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