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5 Things You Should Know Before Applying For A Gold Loan

For many years gold has remained as one of the most popular borrowing instruments, especially for people in need of immediate finance in a short period. Also being an asset-backed loan, loan givers usually do not look for credit score for approving it. Hence it is a prudent choice of borrowers with a low credit score. However, repaying the loan might have certain implications on your financial future. Hence you must be careful while applying for it. Here are seven factors to consider while applying for a loan against gold.

  1. Loan amount

As gold loan is a secured borrowing the amount depends on the valuation of gold deposited by you as collateral. Note that RBI has restricted banks and non-banking financial institutions from offering loan worth more than 75% of the gold value. Lenders retain margin amounts; hence you do not receive the whole gold value as a loan. 

  1. Rate of interest

As the interest rate on gold loan depends on the lender’s assessment of risk. It may vary anywhere from 9.24% to 26% p.a. Loan tenure, Loan To Value ratio, loan amount, etc are the factors that determine the lender’s interest rate. Therefore before finalizing on a lender, make sure you compare the interest rates offered by other lenders. 

  1. Processing fees

Processing fees is the expense incurred by lenders when processing your loan application. It usually ranges from nil to 2% of the loan amount. Make sure to check the processing fee before you apply for loan as the amount might be huge if your loan amount is significant. 

  1. Loan disbursal time

Gold loan usually does not require much documentation and is approved within a few hours of application. This is because the lender already has security in the form of pledged gold. Quick loan disbursal makes gold loan a prompt choice to deal with financial emergencies. 

  1. Loan tenure and repayment

Gold loan is a short term loan. It can range from a span of 3 months to 3 years with flexible repayment options. Apart from EMI repayment, borrowers can also choose to repay the whole interest upfront and the principal amount later at the end of loan tenure. You can opt for a repayment option that suits you the best. 

  1. Foreclosure charges

Foreclosure refers to the repayment of loan before the completion of loan tenure. For this, the lender might levy some charges. They can be up to 2.25% of the outstanding amount. By choosing to prepay, you tend to save on your interest charges. Therefore if you plan to repay your loan, ensure to choose a lender with minimal foreclosure charges. 

  1. Gold purity and valuation
The kind of gold pledged plays a crucial role in determining the loan amount. Generally any kind of gold ornament, coins or jewellery can be presented as collateral. Lenders assess gold via inhouse valuation setup or third-party evaluators to decide the total principal amount.

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