What Should You Know Before Applying For A Gold Loan?
Did you know that there are certain things you need to be aware of before you apply for a gold loan? Here are the 8 things you must consider before you take gold loan!
While traditionally, Indians had inhibitions regarding pawning the yellow metal, today, more Indians are putting it to productive use. A gold loan can help navigate financial uncertainties. Below are some things that help answer the question ‘what is a gold loan’.
1. Secured Loans
To avail of a gold loan, financial institutions hold gold as collateral and charge an interest rate. Upon repayment of the entire sum, the gold is returned.
2. Purity of Gold
The amount of loan to be disbursed directly depends upon the purity of gold. The higher the purity of the gold, the higher the loan amount. Also, the purity of the collateralized gold should lie between 18k and 24k. Stones or other metals embedded in the ornaments are excluded from the valuation of gold.
3. Loan-to-Value (LTV) Ratio
Let’s consider that a person pledges gold worth INR 10,000. However, the loan amount sanctioned is INR 7,500. The LTV here is 75%.
LTV acts as a protective shield for lenders. The LTV ratio determines the maximum amount of money that can be lent against every INR 100 of gold pledged. Historically the LTV ratio has been set between 75-90% as stated by the RBI. It is worth noting that this ratio should be maintained throughout the loan tenure and not just at the time of sanction.
4. Loan Tenure
Gold loans are short-term loans lasting between 7 days to 4 years. A person applying for a gold loan should select the loan tenure, keeping in mind their money needs, monthly income and expenses in mind.
Gold loans are the most secured assets on the books of the lender. If a borrower fails to repay the loan, the gold held as collateral can easily be liquidated. As a result, lenders ask for minimal documentation/ KYC and optional income proof from their borrowers. Sanctioning the loan typically takes a few hours to a few days.
6. Loan Repayment
EMI and a bullet payment are both acceptable for gold loans. Most lending institutions also do not charge any fee for prepaying the loan. Some institutions may, however, charge up to 2% of the principal amount as a penalty.
7. Other Charges
Lending institutions also levy charges other than interest when sanctioning gold loans. These charges can be processing fees, documentation fees, valuation fees, payment default fees, etc. Combined, they can become a very significant sum for the borrower.
8. Customer Support Mechanism
Lending institutions resolve queries seamlessly on a real-time basis. Furthermore, they send timely emails, SMS, and WhatsApp reminders for interest and principal repayment to help avoid penalties.
Apply For A Digital Gold Loan With IIFL Finance
IIFL Finance Gold Loan is India's leading provider of gold loans. Since its founding three decades ago, the company has helped thousands of customers obtain financing against the idle gold kept with them.
IIFL offers competitive interest rates and flexible repayment terms for short-term gold loans. When you get a gold loan from IIFL, your collateralized physical gold is kept safe until you pay the total amount. Your gold can then be redeemed and returned at no additional cost. You get immediate funds for your gold jewellery.
IIFL's Digital Gold Loan facility allows you to access gold loans anytime. Get funds in a hassle-free, paperless transaction from your mobile phone. The entire process is transparent, has no hidden charges, and your gold gets a free insurance cover from us.
Reach out to IIFL Finance to get an instant loan against your gold jewellery at competitive gold loan interest rates.
Frequently Asked Questions
Q1: Who Is Eligible For A Gold Loan?
Ans: Different financial institutions have different age criteria. For most financial institutions, it is between 18-70 years.
Q2: Can I Get A Loan Against All Types Of Gold Jewellery?
Ans: Yes, all forms of gold jewellery can be used as collateral for gold loans including pendants, chains, bracelets, etc. However, lenders have different loan-to-value (LTV) limits for each type of jewellery. Additionally, the purity of gold is strictly measured.
Q3: Does A Bad Credit Score Affect My Gold Loan Eligibility?
Ans: You can be eligible for a gold loan with a poor credit score. As against personal loans, gold loans are backed by collateral. However, bad credit history may impact the interest you are expected to pay.