Financial emergencies call for quick measures of mitigation. Gold loans are one of the most flexible and prominent options sought by borrowers across the market. Being a collateral backed loan, lenders extend gold loans for applicants with even low credit profiles.
However, repayment of the gold loan can take a downhill if one does not make an informed decision.
Here is a comprehensive compilation of the factors that every applicant should consider before applying for a gold loan per gram.
Key pointers to be considered for a loan against gold
1. The Loan Amount Sanctioned
The loan amount approved for gold loans is dependent on the weight and its purity. Lenders consider the equivalent of 22-carat gold. So if the gold collateral submitted is of lesser quality, consequently the loan amount reduces. Lenders might also seek the help of third-party vendors to determine the loan amount.
Also, RBI has imposed strict regulations regarding the loan amount to be sanctioned. As per RBI protocols, the lender should allow only 75% gold worth as loan amount.
2. Interest Rates
The interest rates for gold loans are lesser compared to its unsecured counterparts of personal loans. At the moment, the interest rates for gold loan stands at 9% to 24%. Lenders such as Muthoot Fincorp provides gold loans at interest rates beginning from 12% per annum.
The interest rates also depend on the Loan to Value Ratio (LTV). Higher the LTV ratio, higher will be the interest rates charged by lenders. As several lenders are offering gold loans, it becomes a real stumper for applicants to narrow it down to the right lender. Hence applicants should compare the interest rates of all eligible lenders before making an informed decision.
3. Processing Charges
These charges are often levied for processing loans against gold. It can range from nil to 2%. However, specific lenders may charge hefty flat rates for processing. Thus applicants should perform a ‘gold loans near me’ search and compare the processing charges levied by lenders before zeroing to an option.
4. Loan Disbursal Period
Gold loans are the fastest credit tools to address short span financial requirements. Since it is backed by valuable collateral, the paperwork involved in its approval are minimal.
5. Loan Repayment Period
Gold loans offer the most flexible repayment modes. E.g., Lenders like Muthoot Fincorp provides two methods of the gold loan repayment convergent with applicant’s needs.
- Bullet: The bullet mode of repayment provides the applicant with the freedom to repay any amount during the loan tenure. The applicant can either pay the entire principal amount during the loan tenure or pay in small instalments.
- EMI Schemes: The EMI scheme is a more structured scheme of repayment with longer tenures for refund.
6. Lender Credibility
Lenders receive maximum security while sanctioning gold loans because a valuable asset is placed as collateral. However, applicants also need to be assured of the credibility of the lender before a collaboration. Applicants are advised to conduct a thorough “gold loan near me” search and compare the experiences shared by the former customers. It can aid in determining the most credible lender among the lot.