Mistakes To Avoid While Applying For A Gold Loan
Gold can be easily converted in cash so many people opt for a gold loan, but it is essential to look out for missteps that can cost you in future. Know more about the mistakes you can avoid while applying for a gold loan.
In India, gold is a precious asset. It symbolizes both wealth and investment. One can monetize these gold assets without selling them in the market and opt for a gold loan. It helps you get financial aid without hassle with flexible repayment options and quick disbursal.Although a gold loan comes with the perks of obtaining instant cash, it is essential to look out for mis-steps that can cost you dearly in the future. Here are some mistakes one should avoid while availing of a gold loan.
1. Not Verifying The Lender's CredibilityIt is essential to check the lender’s credibility as the gold needs to be in safe hands. The collateral remains with the lender till you return the entire loan amount. Therefore, the borrower must perform a thorough check on this aspect. It is advised to deal with lenders who store gold in a secured vault. Reputed banks and non-banking financial corporation is the best option where the gold is safe.
2. Not Comparing OptionsAs a borrower, you must compare all the options available in the gold loan market. Research the latest market trend to bag the best gold loan deal and shortlist a few good options. This approach of comparative study will lead to a good offer. While comparing, look out for lenders with lower interest rates or a higher loan-to-value (LTV) ratio.
3. Not Checking The Repayment StructureAnother common mistake is being negligent about the repayment structure. Understand all the repayment structures before signing the dotted line. It can be either partial payment or interest EMI, or bullet payment. It is essential to be aware of all the repayment methods the lenders have to offer.
4. Not Knowing The Worth Of The GoldGold comes in various forms like solid bars, gold coins, jewellery, and ornaments with stones. It is imperative to understand the value of the gold before mortgaging it. Every bank follows the standard purity limit to sanction the gold loan, usually 18 carats and above. In the case of gold with embedded stones and diamonds, only the weight and purity of gold are considered. Gold coins of above 50 grams are also accepted as collateral.
5. Not Being Aware Of Auction TermsUnderstanding the auction terms from lenders is equally essential. If you fail to pay on the given schedule, the lender is entitled to auction the gold. Therefore, as a borrower, you must read the fine print to understand the auction process. It is recommended to take an informed decision about the gold loan and every relevant detail involved in the process.
Q.1: What is LTV?
Ans: Loan-to-Value Ratio is used by creditors to calculate the value of the gold. Usually, up to 90% of the total value is the permissible loan amount sanctioned.
Q.2: What is the minimum gold purity standard required to get a gold loan?
Ans: The gold needs to be 18 carats and above.