Top 5 Mistakes To Avoid While Applying For A Gold Loan

In Indian households, gold has remained a trusted commodity. One of the most rewarding advantages of investing in gold is that it is not subject to depreciation like paper money. Therefore, if the market crashes, it is unlikely that the value of gold will drop significantly. Therefore, it can be good collateral to avail of a loan during financial emergencies.

This article discusses the mistakes to avoid while applying for a gold loan.

A gold loan is a secured loan where your gold items (jewellery, coins, biscuits, etc.) act gold as collateral. While availing of a gold loan is easy, you should avoid the following mistakes while applying for a gold loan.

A loan against gold serves as a convenient and quick source of financial aid, and there are several benefits to a gold loan. For example, you are leveraging the value of your gold assets without parting with them. Today some companies offer you a gold loan at home so you don’t have to run around for the paperwork. However, applying for a jewellery loan requires careful consideration to avoid potential pitfalls. In this guide, we will explore the top mistakes to steer clear of when seeking a gold loan online or offline.

1. Not Checking the Lender’s Credibility:

When pledging your gold as collateral, the risk lies more on you than the lender. It's crucial to thoroughly assess the credibility of the lender or Non-Banking Financial Company (NBFC). Opt for reputable institutions regulated by the Reserve Bank of India (RBI) to ensure the safety of your assets.

2. Not Exploring Other Gold Loan Options:

Many banks and NBFCs offer gold loans with varying terms and conditions. Avoid the mistake of accepting the first offer without comparing multiple lenders. Utilise aggregator websites to assess the interest rates, loan-to-value ratios, and other perks offered by different institutions. This comparative study can help you secure a more favourable deal.

3. Pledging Any Gold Items Without Verification:

Certain gold items may not be accepted as valuable collateral by lenders. To avoid rejection, check the lender's eligibility criteria to determine which gold assets qualify. This step is crucial before using the lender’s gold loan calculator or applying for Gold Credits. Additionally, understand that gemstones in jewellery are often not considered in the loan valuation.

4. Ignoring Gold loan Rate of Interest:

Failure to consider the jewel loan interest rate associated with a gold loan can lead to long-term financial burdens. Opt for loans with reasonable interest rates to prevent unexpected financial strain. You must properly understand the terms and conditions related to interest payments and choose a loan that aligns with your financial capabilities.

5. Not Knowing Your EMI Alternatives:

Before submitting your gold loan application, understand the various gold loan repayment options available. Familiarise yourself with daily EMI options, partial payments, bullet refunds, and interest-first, principal-later schemes. This knowledge allows you to choose a repayment structure that aligns with your financial situation.

6. Lack of Knowledge about Loan-to-Value (LTV) Ratio:

Understanding the gold LTV ratio is crucial when applying for a gold loan. Lenders calculate the loan amount keeping in mind a percentage of your gold's market value. Familiarise yourself with how lenders determine the LTV ratio and be aware that higher ratios come with increased risk. Knowing the market value of your gold and the benchmark price used by the lender is essential.

7. Not Understanding the Nature of Gold Pledged:

Pledge gold loans are typically granted on gold with a purity of 22 karats or above. Ensure your gold meets these purity standards, as lower-purity gold may result in reduced loan amounts or loan rejections.

8. Neglecting to Read the Fine Print:

Before signing any gold loan documents or agreement, carefully read the terms and conditions. Understand the conditions under which the lender can possess and auction your gold. Clarify prepayment charges and other hidden fees, ensuring you are fully aware of the loan's intricacies.

9. Not Considering After-Sales Service:

Borrowers often overlook the importance of after-sales service. Opt for lenders or gold loan companies with a good track record and who have excellent customer service. A reliable after-sales service ensures a hassle-free loan experience and provides peace of mind throughout the borrowing process.

10. Unawareness of Auction Terms:

In the event of default, the lender may auction your gold to recover the outstanding amount. Clearly understand the auction terms, including the associated penal charges. Open communication with the lender about potential financial difficulties can help in finding a solution before the auction process is initiated.

11. Overlooking Hidden Charges:

Some financial institutions may hide charges in the terms and conditions. Be proactive in understanding all hidden charges, including processing fees, foreclosure charges, penal charges for late payments, and auction-related fees. This information will assist you to make informed decisions and avoid unexpected financial burdens.

Applying for a gold loan is simple, but it requires being careful to avoid common mistakes. A well-informed person is better equipped to navigate the gold loan application process successfully.

Apply For A Gold Loan With IIFL Finance

IIFL Finance is a leading gold loan provider. We provide quick loans with small financial requirements with minimum eligibility criteria. You can check the rates at your nearest IIFL Finance branch or apply for gold loan at home service

The entire process, from application to disbursement, is 100% online. The disbursals take 24-48 hours. This way, you can fulfill your needs and repay them per cycle. Apply for an IIFL Finance gold loan today!

Frequently Asked Questions

Q.1: What are the required documents for a gold loan?
Ans: Since the gold loan process with a reasonable interest rate is simple and quick, you do not need to submit extensive documentation apart from ID and address proof.

Q.2: What are the additional charges associated with a gold loan?
Ans: A nominal processing fee is chargeable on your gold loan, which varies from lender to lender. Typically, the processing fee does not exceed 2% of the loan amount. Some financial institutions also add a gold validation charge with a processing fee.