It’s common practice in India to wear gold jewelry as a form of currency. Indians purchase them not only as a decorative item but also as an investment that they can tap into at any time to cover their immediate cash needs. Gold can be used to secure a loan in the event of a medical emergency, a business expansion, or any other financial obligation. One of the best ways to get a loan today is to take out a gold loan. Cash advances in the form of gold loans can be obtained in a matter of minutes and with little hassle. Gold loans have long been a favorite of the general public for this very reason. Other NBFCs are also focusing on this market.
When Taking Out A Loan Against Gold, There Are A Few Mistakes To Avoid:
- Not Checking The Creditor’s Credibility
A secured loan, such as a gold loan, is safeguarded by some form of collateral (gold in this case). The creditor or lender retains this collateral until the loan is paid in full. Borrowers who default on their loans can use the collateral to recover some or all of the money they owed the lender. However, what about the borrower? This works well for the creditor. Borrowers can only be safe if they deal with well-established banks and non-bank financial institutions (NBFIs). People frequently make the mistake of failing to investigate the lender’s legitimacy. You have the cash in a gold loan, which is a fraction of the gold you have promised. As a result, you bear more risk than the lender. Before taking out a loan, you should conduct a background check on the lender. Because your gold is held by the lender until you fully return your debt, a gold loan might be risky for the borrower. Making it a point to only take out gold loans from well-established and reputable banks or NBFCs. Any firm controlled by the Reserve Bank of India is always a better bet for you.
- Not Comparing Your Options
Getting the best gold loan in India deal is a top priority for many people. Getting one isn’t as simple as following a set process; instead, it’s highly dependent on the specific needs of the borrower. Although one can ensure that they compare all options before signing the dotted line. You should therefore do as much research about market trends, talk to various banks and financial institutions like Rupeek to learn about their offers, and then shortlist a few good alternatives. Look for a lender who will provide you with a loan at a lower interest rate or a higher loan-to-value (LTV) ratio when weighing your options.
- Not Considering The Repayment Structure
Loan customers should always inquire about the repayment structure before accepting a loan offer. They can better plan their finances if they are aware of the repayment terms and how to avoid defaulting on their loans. You can use a gold loan calculator for EMI checks. The following are four possible repayment structures provided by your creditor:
- Regular EMIs
- Partial repayment
- Only interest EMI
- Bullet repayment
- Avoiding LTV Calculation
Loan-to-Value Ratio (LTV) is an abbreviation for LTV. To express the ratio of a loan to an asset’s value, creditors use the term “loan-to-value.” A creditor’s risk assessment is based on this ratio. As LTV increases, so does the associated risk. To get the most money from lenders, borrowers must also consider their LTV ratio. Depending on the value of your gold, lenders will fund a loan up to 75% of the gold’s total value.
- Being Unaware Of The Gold Quality Required For The Loan
Check to see if the gold jewelry you plan to pledge meets the minimum purity requirements. Only gold objects with a purity of 18 – 22 carats or higher are accepted as collateral by lenders.
- Knowing Nothing About Gold Loan Eligibility
Gold bars and gold bullion are not accepted by banks for gold loans. You can get a gold loan if your gold coins are 99.99 percent pure and weigh no more than 50 grams.
Taking out a gold loan is a form of collateralized lending. As a result, your credit (CIBIL) score will be unaffected. If you need money right away, this is the way to go. However, to avoid problems in the future, only use reputable companies to obtain a gold loan. The gold loan should not be a burden on you and your family. Think carefully before signing the loan documents, even if you are in a bind. One of the most valuable assets you own is your gold. You need to be extremely careful not to lose it. Lenders in India, on the other hand, prefer to use gold jewelry as collateral because it has more sentimental value and ensures that the borrower pays on time.