Take out a gold loan? Keep important things in mind
New Delhi: In the midst of the Covid-19 pandemic, many have lost their jobs or suffered wage cuts. Some people have financial problems because of job loss or wages. For those in such a situation, any short-term liquidity problem can be solved with both a personal loan and a gold loan.
However, both loans differ in terms of cost, accessibility, credit impact, and repayment flexibility. You have to weigh both options, taking into account your needs, before deciding which one to choose. Gold loans can help overcome a temporary cash crisis more easily because you can get a loan quickly with minimal paperwork. The lender does not check the creditworthiness or assess the repayment ability of the borrower while making a loan for gold.
When taking out a gold loan, here are some things to keep in mind:
Lender: Both banks and NBFCs offer loans for gold. However, there is one major difference between banks and NBFCs. The former offers better interest rates while NBFCs can lend larger amounts. NBFCs can lend more as they value your gold at a higher rate compared to most banks. There are other minor differences such as NBFC, which mainly lends for gold, can offer loans faster compared to banks as they rate the metal internally. On the other hand, not all bank branches may have this facility and they can hire an appraiser to do this.
Purity and Gold Bars: Note that in the case of the yellow metal, the minimum purity that lenders will accept is 18 carats. Most lenders may not consider gold to be pure below this value. In addition, many lenders do not lend gold bullion loans. However, you can pawn gold jewelry and gold coins. For coins, lenders require higher purity and have weight restrictions. Most lenders will not consider diamonds or other gemstones that are part of the jewelry when evaluating as they only lend for gold.
3. Fees and repayment of the gold loan: Most lenders do not have prepayment fees. But even if there are a few who collect it, they account for around 1% of the outstanding balance. In addition to prepayment fees, evaluation fees and processing fees may also apply. When repaying a loan, you have several repayment options available, depending on the expected cash flows.
4. Refund EMIs: You can either repay in equal monthly installments (EMIs), or you only pay interest during the term and a one-off repayment at the end. Some lenders, especially NBFCs, will subtract the interest portion before paying out the loan amount.
5. Non-payment: Borrowers need to keep in mind that lenders have the right to sell their pledged gold if they cannot repay the loan in a timely manner. If the gold price falls, the lender can also ask the borrower to pledge additional gold. The lender wants to maintain the loan-to-value ratio, that is, the value of the gold he holds should always be higher than the money he has paid out;
Gold Loans Myths You Must Avoid:
People think that only jewelers can offer this type of gold. But banks and non-banking financial companies (NBFCs) also offer gold loans. In fact, some NBFCs only offer gold loans. Some people fear that their ornaments can be replaced with fake doppelgangers. However, it can be noted that your gold is completely safe with licensed banks and NBFCs. This is because the gold is kept in a vault with strong security that guarantees the safety of the property. When you repay the loan, your gold will be returned to you in the exact condition in which it was received.
The gold loan is a secured loan with low interest rates. It differs from bank to bank. It should be noted that the interest rate is often set based on the borrower’s profile. Many believe that traditional jewelry cannot be mortgaged to get a gold loan. The government has clear rules about what kind of gold items can be pawned. Only the word “jewelry” is mentioned. Banks take into account the purity of the pledged gold and it must be at least 18 carats.