In India where gold has immense cultural as well as financial value, the practice of obtaining funds by pledging gold is nothing new. Due to the underperformance of stock markets, liquidating assets is hard without incurring financial losses in today’s scenario.
This is why gold items that belong to an individual or household have become significant assets which can bring money when liquidated.
However, there are multiple things that borrowers need to consider to make the loan against gold interest rate low and avail of it smoothly.
Top 5 steps to avail a loan against gold
Since the popularity of gold loans is rising, many Non-Banking Financial Institutions (NBFCs) in India are offering attractive benefits to them. Not only that, the process of obtaining these loans is also extremely simple.Â
However, there are certain things that an individual must do before taking a loan against gold. These will ensure borrowers get maximum benefits and utility out of these loans.
Step 1: Verify the lender
People usually pledge gold items, such as jewellery while taking a gold loan. These items are not just costly but also hold high sentimental value as well. This is why it is important to ensure the safety of those assets. Therefore collecting information about the lending company and verifying their credentials should be the first step in the borrowing process.
After collecting the gold items, most credible lending companies store them in a secure vault with 24*7 surveillance. Certain lenders also provide complimentary insurance coverage on pledged items.
Step 2: Check interest rates
A loan against gold is a secured loan. Lenders provide funds to individuals depending on the value of gold items. Since gold has a high market value and provides high security to the lenders, the interest rates on the loan are low compared to other loans such as personal loans etc.
However, the interest rate also depends on various other factors and may also vary across different lenders. The interest rate determines the overall loan repayment amount and the value of EMIs. Thus, it is important to compare different loan providers to get the most affordable loan against gold interest rate.
Step 3: Do loan amount valuation
The credit amount of a loan against gold depends on the quality and quantity of gold assets. A lender assesses the market value of gold and decides the loan-to-value (LTV) ratio in which they can provide the loan. Most lenders accept gold items of purity 22 karat and above and provide 75% LTV on them.
Before taking the loan, it is also important to know the maximum amount of money the lending company provides as a loan to its customers. Usually, people can get a loan of up to Rs. 2 crores depending on their pledged asset value.
Step 4: Check eligibility criteria and documents required
Although lending companies do not implement strict criteria for determining eligible loan candidates, there are certain parameters that the applicants need to fulfil. The candidate should be an Indian national between 21-70 years of age to be eligible for a gold loan.
Furthermore, availing of a gold loan requires minimum documentation. Borrowers need to submit a copy of either of the following proofs for verification-
- Passport
- Aadhaar card
- Voter ID
- Driving license
Additionally, lenders may ask for a PAN card if the loan value is more than Rs. 5 lakhs.
Step 5: Enquire about additional charges
Many prominent lenders in India provide the facility of no prepayment or foreclosure charges on gold loans. Borrowers can also opt to pay a part of the loan before the completion of the tenure to recover some of the pledged items without incurring any penalty. Although, this may vary across lenders so it is important to enquire about it before opting for the loan.Â
Gold loans also include certain fees such as processing charges, stamp duty cash handling charges etc. Although these charges are usually nominal, applicants must review this before applying for a loan against gold.
Using an online gold loan calculator is a verified way of checking the loan against gold interest rate before applying for it. This will give the borrowers a clear idea about the repayment amount, help them choose a suitable tenure and streamline the whole process.Â
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