5 Important Factors that Cannot be Ignored while Availing of a Gold Loan
As per a recent report, India’s gold loan market is anticipated to reach a valuation of Rs.4617 billion by 2022. Given the multiple utilities of a gold loan and the present economic condition, these statistics do not come as a surprise.
Recently,individuals especially belonging to the lower and middle-income categories, have been suffering from a growing constraint in funds.
This has ledindividuals to choose gold loans over personal loans. While these loans can prove to be highly helpful, one should consider the below-mentioned factors while acquiring one.
Factors to consider while acquiring a gold loan
Illustrated below are some factors that potential borrowers should not ignore while acquiring a gold loan:
Credibility of the lender
While acquiring a gold loan, borrowers must submit theirgold as collateral to the lender to receive a loan against the yellow metal.The lender is responsible for preservation of this submitted gold till the total payment is processed.
However, there can be instances where a lender turns out to be a fraud. They may dupe the borrowerof their valuable possession even after the payment of the entire amount.
Therefore, to avoid such circumstances, gold loan applicants must check a lender’s credibility. Furthermore, theymust look forward to choosing a reputed financial institution so as to ensure that their gold is safe.
For this, they should conductproper research about the financial institution from which they are acquiring the loan. In addition, factors such assafety measures for the gold, customer reviews of the financial institution, and other aspects should be looked into.
Rate of interest
Interest rate turns out to be a highly crucial factor in determining an individual’s repayment amount. A higher rate of interest on a gold loan can prove to be immensely stressful on an individual’s monthly budget and overall finances. Different lenders extend gold loans at different interest rates. Potential borrowers must go through multiple lenders and choose the one offering the lowest rate so that they don’t have to pay a high repayment amount.
The loan amount is another vital factor in a gold loan. The loan amount also varies with lenders. First-time borrowers must note that no lender offers a loan amount equivalent to 100% of their gold value.
Individuals must again lookout for an appropriate lender and their loan policy before choosing the one offering the loan in the highest LTV (loan-to-value) ratio.
Leading financial institutions host a gold loan EMI calculator on their website. This is a highly user-friendly tool that can used free of cost anytime. A gold loan applicant can use this calculator to decide on choosing the required loan amount, etc.
Gold loan tenor
Usually, a gold loanis accompanied by a short tenor. It is imperative to consider one’s capacity for repayment before acquiring a loan from any financial institution. One should choose the loan tenor wiselybased on his/her repayment capacity.
This is becausethe punctuality inloan repayment depends on this capacity, and a missed payment will adversely affect an individual’s credit score. Plus, they may also have to pay some additional default charges.
Methods of loan repayment
This factor quite ignored by loan applicants while acquiring. In comparison to other loans, gold loans extend flexible methods of repayment to customers. Potential borrowers must check these methods offered by different lenders.
Few lenders allow borrowersto pay the principal amount at the end of tenor and the interest upfront. On the other hand, several institutions allow individuals to pay the total principal amount at the end of the tenor and theinterest amount on a yearly, semi-yearly,monthly, or quarterly basis.
Besides these, borrowers also get to choose the bullet repayment method for further convenience.
After taking note of these factors, individuals can make an informed decision while acquiring a loan. Moreover, borrowers must always check out various lenders to acquire at the best interest rates.