The simplest option to get a loan during a financial emergency is a gold loan. If a person owns gold, then he/she is eligible to apply for a gold loan, which can be of any type like jewels, bars, or coins. You can get it from two sources, i.e., banks and local jeweler vendors, but most people prefer banks. These loans can also be availed through NBFC (Non- Banking Financial Companies). To make the right decision, you have to do your research properly.
Before taking a gold loan, you have to remember these few things:
1. Loan amount
The price of gold is never fixed; it fluctuates almost every week. For obtaining a gold loan, the calculation can be done in many ways. For example, many people take the average price from the last two weeks to estimate its price before taking a gold loan while others calculate the rate of gold daily. You can choose between any calculation which will give you the best gold price.
2. Interest Rate
While availing any loan, whether it is a gold loan or personal loan, one must look at the rate of interest. In comparison to personal loans, the gold loan rate of interest is cheap. But the interest rate provided by the bank will always differ from that of Non-Banking Financing Companies. People prefer to take gold loans from banks as the rate of interest is lower over there as compared to NFBCs. If you choose a local vendor to take a gold loan, then make sure they are known to you and trustable.
3. Short Term
The loans taken against gold have a short term life. The maximum duration to repay your loan is 12 months. So before taking a loan, make sure that you will be able to repay within the time limit. It is one of the easiest ways to get a loan during a financial emergency, but there is a major setback that if you are unable to pay the loan back. It can be very hazardous for your financial status.
You do not receive any evidence or paperwork for your loan, so it is not a credible source. It is one of the fastest loans which you can avail of. In this kind of a loan as the lender is secured already with your gold as collateral, but you don’t have any guarantee, which raises suspicion here. The safety of your gold is questioned as no paperwork is done. Do proper research of your lender before you take a loan, as your assets need to be safe until you get them back. Ensure that the gold which is mortgaged by you should be in safe hands. So make sure to choose a reputed and well-reviewed company.
5. Repayment structure
Check out all the terms and conditions properly before taking up the loan like the repayment details, interest rate, principal amount, etc. Commonly, in banks and other financial institutions, it is easier to pay a gold loan as its repayment structure is very much flexible. In some banks, you can pay the principal amount at the end of the tenure while you can clear off your interest in the EMI structure. All banks do not follow this, so some banks may ask you to pay some part of the principal amount along with interest. So, it’s better to understand the terms & conditions carefully before availing the gold loan.
Check all the points of the loan and sign any paperwork by reading it correctly and be through with it. Ensure that your lender is reliable, and you are not taking a risk while mortgaging your loan.
Everything has its pros and cons. Availing a Gold Loan holds some degree of risk along with it. As Gold LOan is a secured loan, the investors are required to pledge their gold jewelry. The volatility of gold keeps on fluctuating. Some guidelines have been predefined by the RBI in which the banks are required to maintain an LTV ratio of 75%. The overall trend of the economy does not remain static. There is a probability of having a drop-down in the gold loan prices. In some cases, a bank may resell the gold jewels to get the full amount. Such a situation can be avoided, and the investor can save his gold ornaments by repaying the specified amount to the bank.
A gold loan is a good option if you need a loan for a small amount of time, as it can be repaid with great flexibility so that no stress will be there in the whole tenure of payment. However, banks are safer as they have been a trusted choice for 100’s of years.
We hope that you make an informed decision before securing a gold loan. A gold loan is a convenient and faster choice of investment — all the best for your investment journey.