Gold loan is the perfect financial vehicle to get urgent cash at the time of financial exigencies. Being under the category of secured loan, it requires minimal paperwork and documentation, making the verification and approval procedure a lot simpler and faster. It might be surprising to know that 40 per cent of the Gold Loan market is in South India. Also, gold loans come at flexible interest rates, making it a viable option to go for any time.
Gold loan offers a flexibly structured equated monthly instalment plan and one-time bullet schemes for repayment of the loan, keeping in mind the diversity in income levels of different borrowers. People who are opting for a gold loan for the first time are found to make a lot of mistakes. Some things need to be considered before opting for a gold finance scheme as discussed below.
Maximum approved gold loan amount
The upper bar of the approved gold loan amount is set by the lender. The maximum approved gold loan amount is directly dependent on the value of the gold you pledge as collateral. More the value of gold, the greater the gold loan amount. All the evaluations are done considering the equivalent of 22-carat gold. As per the latest revised rule of Reserve Bank of India, the loan-to-value ratio (LTV) cannot exceed 75%.
To understand better, let us take a real-world scenario. If an individual’s pledged gold value is evaluated as per the standard of a respective lender to be of Rs.10,000, then the individual can sanction a maximum of Rs.7,500 against the pledged collateral. Normally the lenders pay 70% of the total calculated market value of gold pledged as collateral by the borrower. The maximum approved gold loan amount is calculated on a per gram basis according to the current market value of gold.
Repayment of loan
Gold loans are short term loans and hence are usually required to be repaid within a year. You can ask for an extended period before you sign up for the gold finance scheme. Muthoot Fincorp is the only gold loan company in India which offers loans for longer tenure as well. Assess your finances in advance to make sure that you can repay the loan amount along with the charged interest in time. Unable to do so might lead to the payment of additional penalty fees or forfeiture of the pledged gold by the lender in the worst-case scenario. However, a good lender gives you all possible/flexible options and opportunities to re-pay and avoid facing any loss of your precious gold ornaments.
Gold loan Interest and EMI options
There are multiple gold loans lenders offering gold loans at different interest rates. Some lenders even offer equated monthly instalments option for repayment of loans. You need to pick the plan that best suits your finances. Calculate the interest and compare monthly instalments that you need to pay every month. This way, you can find whether or not the particular gold loan scheme is for you. There is an online gold loans EMI calculators and gold loans interest calculator, which can help you compare different gold loans schemes faster and shortlist the best one for you. All you have to do is to select the gold loan amount, the interest rate of the particular gold loans scheme and tenure of the loan.
Read the terms and conditions properly
A lot of people opt for gold loans without having complete knowledge about the terms and conditions. Terms of gold loans have important information about the grace period, early pay off charges, penalty charges etc. The grace period is the extra time provided to the borrower after the loan tenure to repay the loan without the need of paying any additional penalties. Hence, the gold loans scheme offering a longer grace period is considered better. You might get a raise in salary and therefore, have some surplus money to pay the gold loans before the tenure, to free yourself from some amount of interest. But some lenders charge a penalty for early payoff. Therefore, it is recommended to go for the gold finance scheme that charges a minimum early payoff penalty.