Indians, in general, are known to have a strong affinity for gold since they consider it to be auspicious. As a result, most households generally tend to invest in gold in the form of ornaments, coins, and even bars. Such investments in gold can come in handy during times of crisis or emergencies since one can simply pledge to avail a loan to meet their urgent cash requirements.

Gold loans are offered by almost all public and private banking institutions and certain Non-Banking Financial Corporations (NBFCs) as well. Thanks to this, getting a loan by pledging gold has become very easy. That said, there are certain key things that you would have to first take into account before availing a gold loan. Want to know what they are? Continue reading to find out. 

• The Value of Your Gold 

The maximum gold loan LTV is currently 90%, which means that you can get up to 90% of the value of your gold as a loan. In reality, however, the amount of LTV that you’re eligible for varies from one lender to another. For instance, you may find that the maximum gold loan LTV offered by an NBFC is around 75%, whereas the Bank of Baroda gold loan scheme may offer 85%.

It is advisable to choose a lender who offers the maximum amount of loan for your gold since it would allow you to better leverage your asset. Also, the loan-to-value for the gold that you possess may vary based on the purity of the metal. Generally, the higher the purity, the higher the LTV . Similarly, the LTV for gold coins and bars is usually higher than that of ornaments.

• The Rate of Interest 

The interest rate is by far the most important factor that you should consider, especially since different lenders tend to levy different rates. For instance, the Union Bank gold loan interest rate starts from 7.90% per annum, whereas Rupeek, a gold-loan-specific NBFC, charges an interest rate of about 9.69% per annum.

In addition to this, the rate of interest may also vary depending on the quality and purity of the gold being pledged. The higher the purity of gold, the lower the interest rate . Therefore, when getting a gold loan, make sure to consider the rate of interest. The lower the rate, the better since it can reduce the impact on your finances considerably. 

• The Tenure of the Loan 

The tenure of gold loans generally tends to start as low as 7 days and can go up to as much as 24 or 36 months. Selecting a low tenure can lead to higher monthly payments, which can end up stressing your finances. On the contrary, selecting a high tenure can lower your monthly EMI, but will lead to you paying higher overall interest.

When getting a gold loan, make sure to choose the right tenure. Ideally, the tenure that you choose must keep your monthly EMIs affordable, while simultaneously ensuring that you don’t pay too much interest to the lender.

• The Lending Institution

As you’ve already seen above, many lending institutions are willing to offer gold loans. The list includes both traditional banking institutions, NBFCs, and small-time players in the unorganised sector. While you may find it easier to simply visit your neighbourhood jewellery shop and pledge your gold for some cash, it is inadvisable to do so. This is due to the various concerns regarding the safety of the pledged gold.

On the other hand, opting for a traditional banking institution is a good idea. The Bank of Baroda gold loan scheme, for instance, offers a high LTV for your gold and at highly competitive rates of interest. Likewise, there are also plenty of NBFCs that specialise in gold loans and are willing to offer them at super competitive terms and conditions.

So, make sure to compare the offers of multiple institutions before choosing a lender. This will help you land a deal that’s beneficial for you. 

• The Repayment Method

When it comes to gold loans, there are multiple repayment methods that you can opt for. You can choose to repay them on a regular amortisation schedule or opt for bullet payments. A regular amortisation schedule requires you to pay a monthly EMI which consists of both the principal and the interest component for a certain period.

Bullet repayments, on the other hand, are very different. In a bullet loan, you will have to only pay the interest component of the loan each month for the chosen tenure. At the end of the tenure, you will be required to repay the entire principal loan amount through a lump sum payment.

Conclusion

These are the 5 key factors that you should take into consideration before taking out a gold loan. In addition to this, remember to also make use of a gold loan EMI calculator. It is a simple and free online tool that can help you quickly determine the approximate amount of monthly EMI that you will have to pay toward a loan.

Getting to know your loan obligations beforehand can not only help you plan your loan better but can also make managing your finances easier.

KR Desk