Gold loan is the loan wherein you mortgage your gold jewelry as security or collateral to the lender. Gold loan is offered by most lenders whether nationalised banks like State Bank of India, Bank of India, Bank of Baroda, or private banks like ICICI bank gold loan, Axis Bank, HDFC Bank and others. Also, there are NBFCs and digital lenders too that agree to offer you gold loan at affordable rate of interest. As compared to other credit options, which might stipulate fixed conditions for fund usage, gold loan offer flexibility to you as a customer to use the funds for any requirement like medical urgency, education, wedding, and others. Also, as the gold loan option is secured in nature, you are not charged a higher interest rate. For instance, in the case of ICICI bank gold loan, the ICICI bank gold loan interest rate starts from 10 per cent per annum onwards and for State Bank of India, the rates begin from 8.55 per cent per annum.
What’s the impact of credit score on gold loan?
The manner you manage and handle your credit repayments is reflected in your score. Delayed repayments of any credit card dues, loan EMIs, etc. have a negative impact on your score. A low score can make it tough for you to avail of any additional loan. So, if you are one of those in requirement of funds, but have a low score, you can take up a gold loan. Doing so even endows you with the opportunity to ameliorate your credit score by timely repaying your gold loan dues in full. Note that, in the case of a gold loan, you must pledge a gold article in the range of between 18 and 22 carats.
As prompt loan repayment can enhance your score considerably, a gold loan for sure is no different. Hence, if you avail a gold loan and repay the same early or within the promised time in full, then it will create a positive impact on your score.
Should you opt for a gold loan in case you require immediate funds?
For years, investment in gold articles has been a great saviour in times of financial issues or distress or when you required immediate funds. Gold articles can be used to mitigate your unanticipated medical expenditures, repair, or build a home, fund a dream wedding, or finance your child’s higher studies. You can access your idle lying gold articles for quick loans and swiftly mitigate pressing financial needs.
Since the COVID outbreak, the gold loan has become a popular borrowing credit option, which has acquired higher importance. It is simple for you as an individual to pledge the gold jewellery and overcome any cash or financing constraints on uncertain occasions. You can get better conditions and timely access the cash through a gold loan as compared to other traditional loan options. This is a secure and convenient mode of funding without any requirement to liquidate your long-term investments. In a few of the NBFCs like IIFL finance, you can get gold loan approval within thirty minutes with minimal documentation and proper KYC proofs.
However, like other loan options, it is advisable for you to understand specific crucial parameters before availing a gold loan.
Also Check: ICICI Bank Gold Loan Interest Rate
Gold value and purity determine your loan proceeds
The loan proceeds sanctioned are dependent on the gold value. The gold valuation is directly proportional to the gold’s purity. It is crucial to remember that the gold’s purity must be at least 18 carats to qualify for a loan. Ensure to authenticate the rate of every gram to get a good deal against your ornament or jewellery.
Compare gold loan rate of interest
A gold loan rate of interest is determined by the lender’s risk evaluation of you as a borrower. It might differ between 7 – 26 per cent per annum. LTV ratio or loan-to-value ratio, loan repayment tenure, loan proceeds and other parameters are used by the lenders to decide the rate of interest on gold loans.
Assess repayment options
It is crucial to assess your repayment flexibility while availing a gold loan. You can select a regular EMI mode, or bullet repayment option to settle your gold loan. Choose the repayment choice convenient to your cash flow position and income stream.
Select a credible financial institution
Selecting a reliable and credible lending institution is crucial as it requires you to pledge gold investments as security or collateral. Avoid availing loans from any unregulated lender. Few may be fraudulent and even impose unfavourable conditions.
Foreclosure and pre-payment fees
Many lenders do not levy prepayment charge on gold loan as it is available at floating rates. However, there always is a possibility that the financial institution may levy up to 2 per cent of the outstanding amount as a penalty in the case of a fixed interest rate regime. Ensure to read the conditions before availing the gold loan.
Processing charge
Processing charges are a one-time expense on your application. This ranges anywhere between 0 – 2 per cent of the loan proceeds. And it is recommended to check your processing charge, particularly if you are opting for a big ticket proceed.
Loan disbursal time
Such loans include minimal documentation and are accepted in no time. It is crucial to check that the financial institutions offer an instant gold loan disbursal and simple to access funds for meeting your personal or business requirements.
Loan repayment tenure
Gold loan is basically a short-term credit option, including repayment tenures ranging between 7 days and 3 years. Selecting the loan repayment tenure as per your monthly cash inflow and other expenditures is recommended.
Customer support
While availing a gold loan, you as a borrower must select a financial institution with a strong customer care system. A customer care system is important to resolve and settle your queries and dues in a seamless manner in real time. Moreover, financial institutions that send you timely SMS, emails, and WhatsApp reminders for principal and interest repayment assist avoid penalties.
