Your jewels are priceless whether garnered hereditarily or bought with your first bonus. These precious ornaments are usually kept under lock and key. We are sure you also prefer to keep them safe in your bank locker or a vault at home. These see the light of day only during specific occasions like a marriage in the household or any other grand event. But sometimes, these protected pieces of precious metal end up protecting you against financial burdens and troubles.
Among these valuable metals, gold is a forerunner for being a monetary backup for the family to fall back on. It retains value even through the highs and lows caused by geo-political events and economic policies. When backed against the wall with sudden expenses for education or a medical emergency, every Indian household considers turning to gold. Some try selling it off and lose their asset. On the other hand, others get loans from lenders with their jewellery and coins as collateral. It might seem like an easy way out when faced with adversaries, but there are multiple things to factor in when taking a gold loan. You can get maximised loan amount sanctioned on your gold by understanding the various aspects involved in the process. First, let’s learn about the multiple benefits you can get by opting for a gold loan!
Why Gold Loan?
Some of you might wonder why one should go for a gold loan with the multiple borrowing options available today. Let’s find out together!
- Minimal documentation involved
- Compared to unsecured and personal loans, the interest rates are much lower
- Employment history, credit score or age not considered when taking a gold loan
- No need to submit employment proof
- Allows flexible repayment
- Minimal pre-payment charges
Usually, lenders do not charge for pre-payment. However, some might charge a 1% penalty on the outstanding amount. Do you think you are ready to get one? Hold your horses! Here are some things to keep in mind before you apply for your very own gold loan.
5 Questions to Think Over
1. What is the eligibility for a gold loan?
A disaster can strike anytime, and having one of the most liquefiable assets handy can help you get through it all. Did you know that you can get a loan against gold from the age of 18? That’s right. Age or employment is not a barrier when it comes to getting this loan. If you are an adult citizen of India, you can get a loan against that family heirloom lying in your possession for a fair valuation.
2. How is the valuation of your gold decided?
To start with, the amount sanctioned to you depends largely on the valuation of your gold. The higher the purity, the more the valuation amount. A minimum purity of 18 karats is essential for mortgaging your gold. If you are about to take a loan against your special neckpiece studded with rubies or some other gemstone, here’s something for you. When evaluating your jewellery, the loan amount will be based purely on the gold in the ornament, not the additional gemstones. The loan-to-value ratio on gold loans usually varies between 60% to 90%. Loan-to-Value or LTV ratio determines the maximum amount you can borrow under a secured loan, based on the liquidity and the market value of the asset kept as collateral. For example, let us assume that your gold neckpiece was valued at ₹1,00,000 and the financial institution’s LTV is 75%. In this case, the loan sanctioned to you by the lender will amount to ₹75,000. Besides this, you can also be charged an additional processing fee of about 1% on your loan.
3. Where to get the loan from?
This becomes an extremely crucial question when taking a gold loan for two reasons; the interest rate and the safety of your gold. Interest rates offered to you on a gold loan range from 7% to 25%. This rate depends on your risk assessment. Therefore, it is important to compare various offers and select a lender who provides you with lower rates and a higher gold valuation. It is also essential to consider getting a loan from reputed NBFCs and banks against local jewellery shops. This guarantees the safety of your gold and that you aren’t cheated on the valuation. When handed over to the bank, your gold remains safe from external threats. Hence it is advisable to not be swayed by the ‘easy’ option provided by local stores. Do thorough research before handing over your gold to your lender!
4. What are the multiple repayment methods offered?
Gold loans are flexible with the method of repayment and the available tenor. You can pay back your loan amount through:
- Equated monthly instalments (EMIs)
- Bullet payments
- Interest now, principal later
While you may be familiar with EMIs, under bullet payments, you can repay the entire principal and interest amount together as a lumpsum at the end of the pre-fixed tenor. Under the third option, you can opt to pay for the interest applicable through monthly instalments. After which, you can repay the principal amount at the maturity of the loan. Depending on your financial circumstances, you can choose to repay your loan amount through any of the above methods. Gold loans are usually short-term loans and range from 6 to 12 months depending on your requirements.
5. How will a drop in gold prices affect your ongoing loan?
As the global economic market keeps changing, gold rates may also change. While it is true that your loan amount is in proportion to your gold’s market value, there is no need to panic in case of a drop. Your LTV ratio moves up with the depreciating gold value. Let’s say the loan you got on 75% LTV was pushed to 80% with a recent drop in gold prices. The loan amount sanctioned becomes higher against the value of the gold mortgaged. If a downward trend in gold rates is noted, your lender might ask you to make up for the difference with more gold or cash. You might also be asked to deposit a pre-payment of the amount sanctioned to reduce such risks of depreciation in gold value.
Your gold is meant to spark up your occasions and help you pull through during tough times. Getting a loan against your gold for short-term emergencies is a great idea! We hope to have answered all possible questions regarding gold loans. With this knowledge, get a loan at a great valuation against your gold! If you wish to compare multiple offers from various loan providers, go on Bajaj Markets! With trouble-free applications and a wide range of lenders to choose from, get the best value for your gold and go against all the challenges life throws at you!