Six things to consider before applying for a gold loan
Availing a gold loan might seem very simple and easy at first. Here are the 6 things to know before you apply for gold loan with IIFL Finance!
In times of distress, gold is your best friend. When an emergency strikes and no ready cash is available, a loan against gold can easily bail you out of a difficult situation.
Gold can be used in myriad ways to meet gaps in your income and expenses. Not only can it be used to meet unexpected medical bills that can often times run into lakhs of rupees, it can also be used to fund your child’s school or college education, pay for a house repair or construction or even help part-fund a destination wedding for which you may not have enough money at hand.
Gold loans have gained in importance even more during the Covid-19 pandemic, which has left lakhs of people in distress.
Here are the six most important things you need to keep in mind before you go and apply for a gold loan.
The purity of your gold should be minimum 18 carats. A gold loan lender sanctions a loan against the yellow metal after looking at its purity. The loan value will be directly proportional to and dependent on the purity of the gold.
Typically, lenders lend upwards of 60% of the value of gold. A borrower should be mindful of this fact. You cannot avail a loan that is valued the same as the current market value of the pledged gold.
Flexibility in repayments
Make sure the lender is flexible with repayment options. Many lenders allow borrowers to choose options that can fit into their income streams conveniently.
Processing fees and foreclosure or pre-payment charges
Processing fees can vary time to time of the principal loan amount. A borrower should be aware of this while taking out a gold loan and should explicitly check with the lender whether any processing fees are being levied.
Most lenders do not charge foreclosure fees or pre-payment charges for gold loans. However, some lenders could be charging as much as 2% of the principal amount as penalty. Prospective borrowers should know about such charges before availing the loan.
Choosing a regulated lender
There is a vast unregulated market of pawn shops and other small-time moneylenders across the country. However, it is best to choose a credible lender while taking out a gold loan.
A gold loan requires borrowers to put up as collateral their precious jewellery, with which they may have an emotional connect. So, it is important to choose a regulated entity that has state-of-the-art safeguards in place to ensure there is no fraudulent activity.
Moreover, lenders in the unregulated market also often times impose unfavourable terms, charging usurious rates of interest.
Loan approval and disbursement time
Most lenders disburse gold loans quickly, once they have determined the purity of the gold and established the antecedents of the borrower. Also, such gold loans need minimal paperwork. So, borrowers should make sure the lender does not take inordinately long to complete the process.
Prospective borrowers should make sure the lender offers a good customer support mechanism. This will come in handy while settling dues hassle-free and on a real-time basis.
Borrowers should also ensure the lender sends out timely text messages, WhatsApp reminders and emails on repayments of the principal amount as well as interest, so as to avoid penalties.
Gold loans are typically for a short term tenure , and it helps if during this period, there is clear and timely communication from the lender.
This is why it is important to stay away from local moneylenders and to choose a reputable lender and market leader like IIFL Finance. Doing so will ensure that the entire process from application to loan disbursal and then from repayment to the return of the gold to the borrower, is smooth, timely and hassle-free.
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