Gold Loan: Know When To Go For It & When Not To

Gold loan is a loan which is available easily at a time of emergency. Read to understand what is a gold loan and whether you should take it or not.

15 Sep,2022 10:42 IST 2 views
Gold Loan: Know When To Go For It & When Not To

One metal that has been constant in Indian households is Gold. It is considered a haven in bad times. The past few years have seen a higher demand for gold loans owing to the pandemic and its effects.

In this article, you will know why you should or should not avail of a gold loan in detail.

What is a Gold Loan?

A gold loan means money borrowed against gold. To acquire a gold loan, you pledge your gold items in exchange for funds. The loan amount depends on the purity of your gold ornaments, typically ranging from 18k to 24k. The Reserve bank of India allows a maximum of 90% of the pledged value as the loan amount.

Should you take a gold loan?

A gold loan is an easy and quick way to raise funds. You can opt for any bank or an NBFC to obtain a gold loan. However, you should check a few things before going for a gold loan.

Valuation of the Gold

You should go for a gold loan if you are getting the best Loan to Value (LTV) ratio. LTV means the percentage of gold value you will get as a loan. A 70% LTV implies that for gold elements worth INR 1 lakh, you will get INR 70,000 as a loan amount.

Interest rate

The rate is based on the lender’s risk assessment and can range from 7-29%. You should go for the least interest rate available to you. Make sure to compare interest rates before availing of a gold loan.

Tenure

Gold loans are best suited for short-term requirements. The tenure can range anywhere between one month to three years. You should go for a gold loan if you are confident of repaying the entire dues within a chosen period.

Repayment options

There are a variety of repayment options that a gold loan lender might provide: EMIs, bullet payments, and partial payments. If you expect your finances to go up at the time of repayment, you should opt for a bullet repayment option. Do not opt for a gold loan only to fulfill your fund needs without a repayment plan in mind.

While gold loans seem like an easy way out of your short-term fund requirements, you should be careful of availing of them. Ensure you have the right quality and amount of gold to avail of the loan. Do not go for a gold loan without a repayment plan in place.

Frequently Asked Questions

Q.1: When is a gold loan beneficial?
Ans: A gold loan is valuable to fulfill your short-term fund requirements. You should have the right quality and amount of gold to take a gold loan.

Q.2: What is LTV in a gold loan?
Ans: LTV or loan to value ratio determines the percentage of value you will get for your pledged gold. For example, if the LTV is 70%, you will get a loan amount of INR 70,000 for gold items worth INR 1 lakh.

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