A gold loan is a secured loan where you pledge your gold jewellery or coins to a lender in exchange for quick funds. It's a popular credit option due to its ease of approval, minimal documentation, and lower interest rates compared to unsecured loans. Gold loans can be used for various purposes, such as funding a wedding, covering medical emergencies, financing education, or even managing business expenses.
However, before taking a gold loan, it's essential to ensure that the loan aligns with your financial goals and repayment capacity. Let's explore 5 things to keep in mind before applying for a gold loan.
A disaster can strike anytime, and having one of the most easily 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.
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 necklace 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 goes up to 75%. 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 necklace was valued at ₹1 Lakh 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.
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 typically start from 8.88% p.a. 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 compared to 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. Conduct thorough research before handing over your gold to your lender!
Gold loans are flexible with the method of repayment and the available tenure. 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 lump sum at the end of the pre-fixed tenure. 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 3 to 36 months depending on your requirements.
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 70% LTV was pushed to 75% 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!
