Key Aspects You Should Know About A Gold Loan

Gold, one of the most precious metals, can also be an excellent investment in the long run. In a gold loan, physical gold is pledged as collateral. It can either be gold bars or ornaments. These secure loans are one of the easiest and quickest ways of getting cash during financial crises. The interest rate is typically around 9%-20% for these loans, which is less than an unsecured personal loan.

Many borrowers prefer gold loans due to the low rate of interest and easy loan approval. One can use a gold loan calculator to check the rate of interest and amount on loan. But before finalising a gold loan, there are several aspects that one should keep in mind. Some of them are explained below:

1. Tenure of the loan: These loans are short duration loans. Some lenders give loans for 12 months, while some extend it up to a term of two years. So before applying for a gold loan, you must be sure of repaying your loan in the specified period.

2. Interest rate: The interest rate on these loans is less than personal loans. But these rates can vary from lender to lender. Loan rates can vary anywhere between 9% to 20% depending upon your lender. You can always use the gold loan calculator to check the total interest amount. Moreover, you can compare different lenders on various online platforms before finalising the loan with your lender.

3. Check your lender’s background: Many organisations and private lenders offer gold loans. The credibility of lenders is essential before you finalise it. There are different lenders, such as banks, NBFCs, gold jewellers, and many more. Jewellers offer lower interest rates as compared to banks and NBFCs. Consumers should be wary of frauds done by many private lenders. 

4. Amount of loan: No lender provides 100% loan amount against the gold value. These loans can be as low as 60% of the gold value and can go upto a maximum of 85%-90%. It ultimately depends upon the lender and its gold loan policies. The value of the loan is calculated in two ways. Either the last two weeks’ prices are averaged or that particular day’s value is considered.   

5. Repayment process: The repayment process for gold loans usually comprise monthly EMIs. Once the gold loan and interest is completely paid off, the gold offered as collateral, is returned to the borrower.

Conclusion

It is essential to understand and read all the terms and conditions of the loan. Gold loans are not the most profitable option, but they are better than personal loans due to lower interest rates and less paperwork. They are the most popular form of secured loan in India. In case of an urgent cash requirement, a gold loan can be your go-to option as minimal documentation is required.

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