In India, gold is not only considered auspicious but also a reserve for rainy days. As Indians increasingly turn to gold loans for help in financial emergencies, India’s organised gold loan market is estimated to increase till it reaches 3.101 billion by 2020, with a compound annual growth rate of 13.7%. Although gold loans are easy to obtain and widely publicised today, it is easy to falter when applying for gold loans.
These are the five most serious mistakes to avoid when applying for a gold loan:
Does not assess the creditworthiness of the lender:
When you buy a gold loan, you actually pledge the gold to the lender, and the amount depends on its valuation. As an asset mortgage loan, your gold will remain in the lender until it is fully repaid. Check the creditworthiness of lenders and compare lenders online. You can use network aggregation services to compare lenders, such as annual interest rates and handling fees.
Not enough options checked:
Today, there are various lenders willing to provide you with gold loans, and each lender has a different proposition for the borrower. When reviewing gold loan options, it is wise to check all options before making the final choice. Gold loans are offered by almost all lenders. Before choosing the lender of your choice, please make sure that you have read the detailed instructions carefully. As a borrower, you may want to use research as your primary selection tool. Talk to as many lenders as possible, compare their products based on interest rates and loan-to-value ratios (LTV), and make a list of finalists. Then, you can make the final choice based on the best offer according to your needs.
Don’t know your gold:
Gold lenders extend loans to the gold jewellery industry with a purity of 22 carats and above. In addition, banks and financial institutions do not accept gold bars, gold bars or gold coins exceeding 50 grams as collateral. Similarly, if the jewellery you promised contains gems, the value of the gems will not be considered. Therefore, it is very important to understand your gold, its purity and value before applying for a gold loan.
Not knowing the nuances of LTV on your gold loan:
When applying for a gold loan, you may not get the full value of the gold as the loan amount. According to the regulations of the Reserve Bank of India, the loan-to-value ratio (LTV) of gold loans cannot exceed 75%. For example, if your gold value is Rs. 100000, you can get a loan with a maximum amount of Rs 75,000. This ratio determines the loan amount you can get from gold. Different lending institutions use different parameters to achieve this ratio. As a borrower, you must know the calculation content of the lender’s LTV ratio.
Do not understand the EMI option:
Gold loans are not only easy to obtain, because they are a form of SecThese are the four repayment structures to considerured loans, and lenders usually provide borrowers with different repayment Structure.
These are the four repayment structures to consider
- Conventional EMI– Basic monthly repayment structure. If you are a salaried employee with a fixed cash flow, this is the best choice for you.
- Partial repayment– With customized EMI structure, you will initially repay the principal to reduce the interest burden. This EMI option is very suitable for business owners. If you are a business owner, you may find it convenient to pay a lump sum at the beginning of the loan term to reduce the interest rate burden in the future.
- Only interest EMI– With customized repayment options, you can pay interest only in the form of EMI and pay the principal in full (coincident with the maturity date of some other investment options). If you are certain that you will receive a large amount that coincides with the end of the loan term (from the maturity date of your previous investment), you can consider this option.
- Bullet repayment– Here, the interest is calculated based on the monthly loan amount, but you can choose not to pay EMI during the loan period. Instead, you will repay the full amount and interest when due. If your cash flow is temporarily uncertain, but will definitely recover when the loan expires, you can consider this option.
After careful consideration, you can choose from any of the above repayment structures based on the lender’s terms and conditions.