Gold loans have got increasing in popularity for many reasons. The prime reason is that it can be obtained without any specific reason. It can be used for different purposes. It is affordable, convenient, and fast and very importantly, the gold loan process is very simple. But before availing of a gold loan, you should consider the following five factors.
Check creditor’s credibility
A gold loan is a secured loan. It serves as collateral. This collateral stays with the creditor or lender till the whole loan amount is paid off. If a borrower fails to repay the loan amount, the creditor can use the collateral to regain the full amount. This gives security to a creditor. But what will happen if creditor turns to be fraud?
It is better to deal with a well-established bank or NBFC. Even if you are getting a low-interest rate on gold loans, never trade with companies or banks that do not have a good name in the market. Secondly, you can apply online gold loan to a reputed, well-established NBFC.
Opt for a low-interest rate
Study the interest rates on gold loans. You should opt for low interest rates on gold loan. This will help you to have less pressure on your monthly expenditure. You may have to compare a few lenders to find out whose interest rate is competitive.
Consider the payment structure
Discuss the repayment structure with your creditors. Once you know the payment terms, you can plan your finances properly. This will avoid the defaults. Your creditor may offer four types of repayment modes.
- Bullet repayment: Here, a borrower has to repay the entire loan amount with interest at the end of the loan tenure. Though the interest is calculated monthly, it is added to the loan amount at the end of tenure. This payment is beneficial if cash flow is less initially and you are confident that things will improve drastically.
- Partial repayment: In this case, the borrower can pay the amount and interest at his convenience. Borrower is not bound to follow any repayment schedule. This structure is most suitable for those people who are in business. If you pay a large portion of your principal amount, your interest for future periods will be less.
- EMI of only interest: In this type of structure, the borrower pays only the interest part as EMI. He is expected to repay the principal amount on the set date of maturity. This may be attractive when your fixed deposit is matured before the gold loan’s maturity date.
- Regular EMIs: This is the most common structure of repayment of gold loan. It is most suitable for salaried people.
- LTV consideration: The creditors calculate the loan-to-value (LTV) ratio to decide the net worth of an asset. The higher the ratio you will get the maximum loan amount. It depends on the purity of gold. Creditors calculate the value of your gold and based on that; they normally provide a loan amount of 75% of its total value.
Confirm the tenure of the loan:
The gold loan is normally considered to be a short-term loan. The tenure lies between 6 to 36 months. This may vary as per the creditor. You should be able to calculate the exact tenure required by you. The basis of the calculation depends on your earnings and expenses.
In general, borrowers search for easy, quick, and simple options to obtain a loan. Different loans are available in the market, but the gold loan can be acquired with less documentation. The interest rate of gold loans depends upon the quality of gold also. This gives an added advantage to a borrower to avail of higher value loans at low interest.
Before entering the gold loan contract, please study all the available options and select the best one.
Bajaj Finserv offers gold loans up to Rs. 2 crore. The company’s gold loan application process is simple. Check the lenders’ website or visit the nearest Bajaj Finserv store for more details.