In recent times, the trend of providing gold loans have become common amongst banks and financial institutions.
If all the options are out of the league and an individual is in urgent retirement of funds, opting for gold is the best option, even better than a gold loan. These are the most easily accessible loans which require very little documentation and are availed within a short period of application.
A few evaluation and verification is done, based on which banks and financial institutions lend the gold loan. The loan amount is as high as 75% of the outstanding gold’s value. The advantage of applying for a gold loan is that an individual does not require to have a decent credit score as lenders do not even check the credit report of their borrowers. The lenders do not even enquire about income evidence to assess cash flow.
Borrowers should have good knowledge about the gold loan they are opting for along with a comprehensive knowledge of the bank or financing firm from where the loan is being issued.
The valuation of the gold loan depends upon the purity of gold. The minimum accepted purity of gold by most of the lenders is 18 karat. When looking at a loan against jewellery, it doesn’t matter what the value of gems and stones hold. A few of the banks and financial institutions don’t even offer loans against gold bars. Coins are still acceptable if their purity is really good.
One should always avoid going to jewellery shops or any other small shops. These always use improper tactics to extort money from their consumers. A bank, formal financial institution, or NBFCs are the best options for gold loans.
Some of the NBFCs deal primarily in gold loans; therefore, they provide a higher gold loan amount, even better than other banks or financial institutions. They also provide flexible repayment options with a comfortable tenure.
The NBFCs might give a good loan amount, but the rate of interest that the banks and financial firms provide is much lower. Here’s the gold loan checklist with two simple things to keep in mind.
Several repayment options are also available.
Paying in Equated monthly instalments is the most common way to repay the gold loan amount. Individuals also have the option of bullet payments. In bullet payments, lenders subtract a portion from the loan amount as interest. For instance, if the loan portion is Rs. 1 lakh and the interest arrested on it is Rs. 10,000. The lender will lend a loan amount of Rs. 90,000. At the maturity period, the borrower will have to pay a sum of Rs. 1 lakh to the lender. This is popular with the NBFCs.
Another option available to the borrowers is that they can pay back the interest in the form of equated monthly instalments during the tenure of the loan amount and the principal amount at the end. This is another common en route taken by the banks.
Gold loans are usually issued to resolve temporary and short term monetary crises. It is usually not used for funding huge expenditures like weddings or education fees or to invest in a huge business. Therefore, it is urged to push for a conventional EMI selection. There may not be a regular cash inflow for business people because of which, other repayment options are more desirable.
Charges and other rules:
There is no option of prepayment on the gold loan amount. A limited number of banks might charge up to 1% of the total loan amount. Lenders charge processing fees as well as estimating charges.
The lenders might issue loans as high as 75% of the gold loan portion. If the borrower is not worthy to entirely repay the gold loan on duration, the lenders have the liberty to negotiate the gold element. However, this is usually done after a lot of constant reminders.
Gold loans can act as a boon during times of sudden emergencies and crises. But every coin has two sides. Similarly, gold loans might prove to be of disadvantages in a few cases as well.
Gold loans are usually provided for a very short tenure of up to 12 months. The money is expected to be repaid after that time. Although, the borrowers can persuade their lenders to extend this tenure depending upon the jointly accepted terms and conditions. The borrowers should always be prepared with the terms and try to repay the loan within the provided time.
All in all, it depends on the knowledge of the borrowers of how intelligently they invest in the gold loans.