The affinity of Indians toward gold is known all over the world. India is one of the largest gold importers. In India, gold is generally kept in the form of jewellery. Indians not just purchase them in the form of ornament but even invest in them. They do so to use their investment in the form of gold to finance their immediate cash needs. Whether there is any medical exigency, business expansion or any form of financial liability, gold also is used; opt for a loan on gold ororo gold loan

A loan on gold is one such prudent option today. Don’t know why. Read on. 

Primarily as it is simple to acquire, these loans assist you in getting financial assistance instantly without a lot of trouble. Also, it is one of the reasons why the market of gold loans has stayed popular amongst the masses for years now. Apart from this, banks and numerous NBFCs even have started to focus on this sector substantially. While a loan on gold has several perks, when applying for the loan, many individuals tread with caution. Listed here are some of the mistakes that many must avoid making when availing of a loan on gold – 

Not checking the credibility of the creditor – A loan on gold is a secured option, which means that they are protected by the security or collateral that you provide (in the case of a gold loan, it is your gold). This security stays with the creditor until the loan proceeds are thoroughly repaid. In the case of any default by the borrower, the creditor uses this security or collateral to regain a few or all of the amount owned by the borrower. Providing your gold as security is a prudent way to avail a loan at a lower interest rate. There is just one way to make sure security for borrowers, and this is to trade with just well-established NBFCs and banks. Even if you are availing a lucrative rate of interest on the gold loan, you do not need to trade with banks or companies that do not have a well-to-do reputation in the market. 

Not comparing your available loan options – Almost everyone wants to bag the best deal on a gold loan. There is zero fixed formula to get one because it depends upon the needs of the borrowers. However, one can ensure that they compare all the feasible options before signing on the dotted line. The initial offer that you get might not be prudent for you. Thus, research as thorough as you can about the market trends, talk with distinct financial institutions and banks to know about their offers and shortlist some good options. When determining your option, look at the creditor that provides you with a loan either with a lower rate of interest or a higher LTV (loan to value) ratio. 

Not factoring in the repayment structure – When factoring in the loan offers, you must talk about the repayment structure with creditors. Understanding the loan repayment tenure will assist you in planning your finances beforehand and avoiding defaults. Your lender might offer you 4 distinct kinds of repayment structures, which are as follows – 

∙       Regular EMIs – It is one of the common and fundamental repayment structures. It’s best suited for salaried who hold a fixed monthly cash flow. In such a structure, loan repayment is made in the form of EMIs, which include both principal and an interest component. 

∙       Partial repayment – In such kinds of structure, borrowers can make repayment of the principal and interest component as per convenience. You, as a borrower, do not need to follow the repayment schedule. This structure is best for individuals who are in business. If you hold a good amount of funds at the start of the repayment tenure, then you must ensure to prepay a sizeable portion of the loan proceed initially so that you bear less interest constituent in the upcoming future.

∙       Just interest EMI – In such kind of structure, the lender asks you to pay just the interest portion as EMI and the principal component in totality on the predefined maturity date. This kind of structure is ideal for you if you are waiting for a bulk amount, which you may receive through your investments upon their maturity. 

∙       Bullet repayment – As per the structure type, the borrower must repay the loan and proceed in totality with interest constituent towards the end of repayment tenure. No amount is needed to be paid off during the repayment tenure. Interest is computed monthly but collected towards the end. You must understand such repayment structures for you to make a good and informed decision when you require to pick one. 

∙       Avoiding the LTV computation – LTV stands for loan to value ratio. This term is basically used by the creditors to express your loan ratio to the net worth of your asset. Credit uses the ratio for risk assessment. Note that higher the LTV, the risk involved would also be higher. To get the highest amount from the lender, you must factor in the LTV ratio even. Lenders compute your gold’s value and, based on this, they generally finance an amount as high as 75 per cent of its overall value. For instance, if the market rate of gold equals Rs 4 lakh, then the loan amount expected to be sanctioned is up to Rs 3 lakh. 

∙       Staying unaware about the gold’s quality that qualifies for availing loan against it – When you pledge any gold jewellery or ornament, make sure that it qualifies the minimal purity criteria. Lenders approve loans just on gold instruments that exhibit a purity level of 18 to 22 carat or more. Additionally, if the ornaments have any precious gems affixed to their design, they may not be factored in determining your loan value. Two major factors that determine your loan value are the gold’s purity and weight.

∙       Staying unaware about the gold form that qualifies for a loan on gold – Ornaments or jewellery have a sentimental value. This sentimental value propels you to repay your loan EMI on time. Thus, in India, lenders prefer to take up gold ornaments or jewellery as collateral or collateral, owing to the chances of your repayment of EMI on time. 

Note that banks neither accept gold bullion nor gold bars for gold loans. You can get a loan on gold against gold coins, but they need to be of 99.99 per cent purity with weight, not more than 50 grams. Apart from this, you as must understand the terms and conditions of a loan on gold thoroughly.

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