Mistakes You Make While Purchasing Gold That May Affect Your Gold Loan

If you are purchasing gold to use it as collateral, ensure that it is of standard quality. Read on to know mistakes to avoid while purchasing gold at IIFL finance.

20 Dec,2022 12:25 IST 1430 Views
Mistakes You Make While Purchasing Gold That May Affect Your Gold Loan

People often turn to their gold assets during a financial crisis as it is easy to avail of a gold loan. A loan that you avail of by keeping your gold elements or ornaments as collateral is known as a gold loan. It is a secured loan with gold ornaments as the lender security. It is an easy and quick way to fulfill your financial needs in adversity. You can avail of up to 90% value of the gold you plan to pledge.

However, there are some criteria that your golden asset should fulfill to qualify as collateral for the loan. Therefore, if you purchase gold to use it as collateral in times of need, you must ensure the following.

Things To Check Before Purchasing Gold

When buying gold jewellery, it's important to remember that the price depends on several factors. Additionally, you should confirm that the gold you purchase is of standard quality with the required markings.

You can get more excellent credit value for their gold contributions. It can help you get higher resale value in a liquidity crisis. Below is a list of things to check before purchasing gold from a long-term perspective.

• BIS Hallmark

BIS hallmarking is an optional quality assurance method used in India. It is the only Government approved agency to inspect and mark the Quality Hallmark (BIS Hallmark). Gold with the BIS inscription has a higher value per gram of gold loan than gold ornaments without thematic reminder.

As a voluntary option, a prominent Kerala/Indian jeweller has confirmed the BIS quality standards and uses the label as a marketing tool. Loans for gold are easily made with BIS-stamped gold.

• Purity

22 carats is the standard transparency for gold ornaments. A carat rating of 24k is considered pure gold. However, it cannot be used for making jewellery. Financing for gold is also perfectly possible with a 22-carat gold purity label. Some banks accept gold elements with 18k purity and upwards.

• Weight

In India, gold jewellery is sold by weight. Gemstones add to the weight. Thus, while purchasing gold jewellery, customers often need to estimate the weight separately. And since most jewellers weigh the entire piece, you pay more than the actual time.

What Are The Factors Affecting A Gold Loan Application?

The gold loan rate per gram depends on the quality and purity of the gold asset you pledge. A gold loan is a secured financing scheme. Thus if the borrower cannot repay the loan amount, the lender will auction the gold. Therefore, if the pledged gold is of acceptable purity and has the BIS stamp, the gold lending rate per gram would be higher.

The detailed list of affecting factors includes the following-

• Purity Of Gold Decoration:

As mentioned earlier, it is essential to know the price of gold per gram because the purity of gold plays a vital role in determining the credit rate of gold per gram. The higher the purity, the higher the gold lending rate per gram.

• Weight Of Gold Items:

In India, gold sells by weight. Thus, the heavier the article, the higher the price. Matching precious stones to gold jewellery adds weight to the jewellery. Therefore, when buying gold, be sure to weigh it separately. By pledging gold jewellery of the highest purity, i.e. 22 carats, you will have the most funds available to deal with financial emergencies.

• Gold Price:

Check the buying price of gold individually, excluding any other gemstones attached to your ornament. Lenders also approve up to 90% of the market value of pledged gold as per RBI guidelines.

For example, if you are committing gold jewellery worth Rs 600,000, the authorised loan amount you receive will be at most Rs. 4.5 lakh rupees. Additionally, the LTV ratio granted depends on the loan term, the form of gold, and the borrower's ability to repay.

Things To Check Before Availing Of A Gold Loan?

Before availing of a gold loan, check the following parameters.

• Repayment Mode

How you repay can significantly impact your disposable income. You will pay hefty fines if you fail to pay the EMI on time. Lenders charge monthly interest only, but failure to repay on time can result in higher interest rates.

You should determine your repayment amount by considering your requirements and ability to repay. Leading companies offer flexible repayment modes allowing borrowers to repay the loan amount conveniently.

• Loan Tenure

Gold loans typically have a loan term of 3 months to 3 years. Choosing a more prolonged duration will only increase your overall interest drain. On the other hand, applying for a short-term gold loan allows you to increase your monthly payments but keeps the overall cost of borrowing under control. Thoroughly assess your financial needs and capabilities.

• Interest Calculation

To avoid unpleasant surprises, you should be clear about the terms of a gold loan before applying for a loan with a lender. For example, a gold loan provider can update the interest rate to the next record if you miss the repayment schedule.

• Lender Credibility

When deciding on a gold loan, choose a reliable lender. Check the lender’s website, as reputable financial institutions have their websites to ensure maximum transparency.

Avail Of A Gold Loan From IIFL Finance

IIFL Finance provides safe, quick, and hassle-free gold loans at affordable rates. The gold loan process at IIFL Finance is swift, with minimal paperwork, instant transfers, competitive gold loan interest rates, and flexible repayment schedules.

Your gold assets will remain safe as we keep them under modern safety lockers and offer insurance coverage to the support. So, avail yourself of the benefits and apply for a gold loan with IIFL Finance today!

Frequently Asked Questions

Q.1: What is a gold loan LTV?
Ans: According to the RBI guidelines, the maximum acceptable LTV for a gold loan is 90%.

Q.2: What is an acceptable gold loan purity?
Ans: For gold loans, acceptable gold purity ranges between 18-24 carats.

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