Gold loans turn out to be one of the best financial instruments to obtain emergency funds in times of financial crisis. However, people who are considering using their gold jewellery as a last option to deal with financial difficulties must first take a few steps and choose the best gold loan company accordingly.
In this article, we are going to highlight the points that make gold loans a viable option during emergencies.
Things to consider while choosing a gold loan n India
Before applying, people should consider the following factors and choose a financial institution accordingly:
- Loan amount
The cash that is offered against the collateral should be the top priority when choosing a loan against gold. These funds are approved by financial institutions based on two main criteria. These are the current gold market price and the LTV ratio which the RBI sets.
The first entails assessing collaterals according to their purity. In order to earn significant value against gold items, people need to pledge gold items with a purity of 22 karats or more. Some lenders will even reject applications for jewellery with a lower purity level.
Hence, to choose the best gold loan company, one should check the loan amount they are eligible for against their gold articles.
- Repayment options
Most gold loan providers offer multiple alternatives for repayment. Borrowers have two repayment options in addition to the standard EMI payments. They have the option to select between paying the principal in full up front and the interest throughout the remaining tenure.
Alternatively, customers can choose to pay the interest only (monthly or quarterly), setting aside the principal payment to be made at the end of the tenure.
For people without consistent cash flow, these two options can be quite useful. Regardless of the repayment plan, make sure to make your payments on time to prevent defaulting.
- Part-payment facility
For gold loan borrowers, the part-release and part-payment features might be very helpful. It enables people to release pledged gold objects worth the same amount in exchange for a lump-sum payment that is less than the total amount owed.
It is important to know the charges for opting for this facility from a particular lender. However, reputable lenders typically provide this service for free.
- Customer support
Before choosing a lender, applicants should consider the customer support services of a lender in addition to the doorstep services. Most financial organisations offer immediate assistance and answer through online agents.
Some extend a helpline number as well to handle client inquiries. However, before applying for a loan, it is the borrower’s right to determine how successful these communication channels are.
Typically, gold loans are short-term credit instruments. Despite multiple repayment options, the majority of lending institutions offer short terms of one to four years. While some even fix the repayment tenure to 12 months. A shorter tenure lowers the interest expense. However, if the loan amount is large, a short tenure can cause significant financial burdens due to the large instalment payments.
As a result, applicants must always select a gold loan tenure that is appropriate for their financial situation.
- Interest rates
Interest rates on loans backed by gold vary across different lenders. Therefore, customers should always be sure to check the terms of various lenders before choosing a gold loan. They can choose a loan programme giving the interest rate that best suits their repayment capabilities.
In addition to checking gold loan interest rates, there are additional costs which applicants must keep in mind, such as processing fees and paperwork fees. Before moving forward with the gold loan application process, ask your lender about these since these charges increase the overall borrowing costs.
- Collaterals allowed
A very important point to keep in mind is that reputed financial institutions and NBFCs exclusively give loans against gold jewellery. Other forms of gold merchandise, such as gold coins and bars, are typically not accepted as security by lenders.
Jewellery having stones or diamonds in it, such as a gold necklace, is also not permitted. This is because the ornament’s total weight is significantly increased by these precious stones, and frequently, the ornament’s actual gold content is insufficient to qualify for a gold loan. Hence, those choosing a gold loan for farmers, or any other occupation must pledge pure gold jewellery.
These pointers will help applicants in choosing the best gold loan company in India. Getting the best terms will allow them to enjoy a comfortable and hassle-free borrowing experience.