India is one of the largest consumers of gold in the world, so instead of keeping the gold lying idle in your locker, you can utilise it for taking loans on a low-interest rate. Gold loans have for a long time been a secure means of obtaining finance in India, as most households in India have the yellow metal as an asset which can be given as collateral.
However, the popularity of gold loans has soared high during the latter part of the last decade when Kerala-based specialized gold loan NBFCs like Manappuram Gold Loan and Muthoot Finance spread their wings to other parts of the country. After that, banks also started popularising this product and started marketing gold loans aggressively.
The process of a gold loan is like any other secured loan. We need to take the gold articles, along with the relevant documents, to the lender. They evaluate the gold items and verify the submitted records. The gold loan has the highest LTV ratio as compared to any other secured loan. Also, being a secured loan, it has low-interest rates as well.
The gold loan is a secured loan that is lent instead of gold ornaments such as jewelry. The loan amount sanctioned by lenders is generally a percentage of the gold. Repayment is similar to any other loan through monthly installments.
After the entire amount is repaid, you can get the gold back.
Gold loan is not like other secured loans as there are absolutely no restrictions on the end-use of these loans.
Gold loans these days are growing at a good pace in the market because the sheer convenience of getting a loan on something like gold is an excellent boost for Indian households. The interest rates are so low, and the approval process is so much faster. Everything together adds to giving an individual a very convenient option to borrow.
Gold is not only a precious metal but also a valued metal in the Indian household. Hence pledging gold for money raises safety concerns for everyone. With currently all the leading nationalized and private banks and NBFCs offering gold loans, the process has become safe and standardized. But there are a few things that you need to keep in mind before opting for a gold loan.
Also, there is another beauty about gold loans. You can get the loan at a low credit score. In the passage and during the journey of loan, by making regular payment you can revive back or increase your credit score.
Another useful tip that you must keep in mind is that gold is precious and close to your heart, so it is definitely safe. But no matter what, never sell your gold. The gold assets can be used and reused multiple numbers of times by the way of securing a loan.
After the complete payment of the gold loan, you can get back the gold ornaments. Also duly care of the gold should be maintained. Avoid polishing, grinding or other things on gold. Let your gold be scared, old, and unique. The original form of gold will fetch you with a higher value.
Do not forget to check the creditor’s credibility
In a gold loan, the gold is pledged with the creditor. What if the creditor turns out to be a fraud? The reliability of the creditor here is essential. The only way to ensure safety is to opt for well-established banks and NBFCs.
The deals provided by these institutions might not be very lucrative but do not opt for any lender who does not hold a proper reputation in the market. Do not just google gold loan near me and rush to any lender without verification and apt research.
Compare all your available options
Everyone wants to get the best deal whenever they are applying for any loan. The only way to do this is to compare all the options available to them as per their requirement.
Research a little before taking the loan and find a creditor who gives either a high LTV ratio or lower interest rate. This can be a tricky area and be careful. Always check the credibility of the lender before you get a loan.
There are many cases of fraud seen. Be careful. A bank or a NBFC are considered to be a desirable source. In case of a third party, always check the complete information of the concerned person.
Consider wisely the repayment structure
When looking for a loan offer, consider the repayment structure offered by the lender. Being a customer, you should always enquire about the repayment structure with their creditors. A detailed understanding of the loan repayment terms will help you choose the best repayment option and plan your finances better.
Calculate the Loan to Value (LTV) ratio
LTV is the ratio of a loan to the net worth of an asset. This ratio is used for risk assessment by the creditor. Higher the LTV, higher will be the risk involved.
Be aware of the purity of gold that qualifies for loan
While pledging gold, do ensure that it qualifies the purity criteria of the gold loan. Creditors generally approve loans only on gold objects that exhibit good quality. A gold ranging from 22 carat to 24 carat is considered to be good. Higher the value, higher will be the returns.
Know the form of gold that qualifies for the loan
Ornaments tend to have more sentimental value especially for Indians, which may motivate borrowers to repay the loan amount on time. Hence, make sure you make a timely payment else the bank can seize the gold from you. I would always advise taking the loan only when you are having a competent financial position.
Hence, in India, creditors prefer to take gold ornaments as collateral. Banks do not accept gold bars or gold bullion for the gold loan collateral. Loans can be availed against gold coins, but they must be 99.99% pure, and the weight must not exceed 50 grams.