Factors to be considered if an individual is planning to take a gold loan-
Tenure of the loan- Gold loans are usually given for a short period ranging from 6 to 24 months. It can also be extended to a maximum of 5 years. Before going for a gold loan, the borrower needs to be sure about his/her repayment capacity within the stipulated time.
Disbursement of the loan amount- People should make a note of the fact that the full value of the gold assets is not given out as the loan amount. The lending bank or the non-banking financial company will always keep some margin for their financial safety. Generally, the loan amount disbursed is higher in the case of non-banking financial companies as compared to banks and other unorganized gold loan lending organizations.
Repayment terms- There are numerous methods that the lending organizations allow the borrowers for making the repayment of the loan amount. In some cases, the repayment can be done in regular EMIs. There is also an option of making the full payment of the interest amount in the beginning and the principal amount at the end of the tenure. There are various other options that borrowers must study properly before they opt for any according to their convenience.
The current price of Gold- It is important to consider the market ups and downs when going to mortgage one’s gold articles. Gold prices are dependent on a plethora of market factors like inflation, global demand, market movement, RBI guidelines. therefore, it is feasible to go for a gold loan when the price is the highest.
Source of the loan- While there are both public and private players in this segment, consumers must verify the terms before engaging with any bank or non-banking financial company. Customers can additionally look at the terms on any bank’s website by clicking on Gold Loan apply online and going through the various stipulations.
There are a few advantages of taking a gold loan-
1. Easy to avail
It is easy to get a gold loan approved as it involves an easy documentation process, so it becomes suitable in emergency fund requirement situations. The processing time is also lesser than other types of loans, making it an instant facility to deal with financial emergencies.
2. Repayment flexibility
Gold loan offers a great amount of flexibility in terms of repayment options. Borrowers can choose the method of repayment from a variety of options according to their convenience and financial capacity.
3. Processing Fees
Most lenders providing the gold loan facility put up much lower processing fees compared to any other loans and in some cases, it can be even 0 percent. For reference, the Indian Overseas Bank Gold Loan puts up a processing fee of just 1 percent.
4. No Credit History Required
Credit history does not matter for availing Gold Loans, as gold is the only collateral required against which the lender provides the funds. This particular point makes gold loans much more dominant.
5. No Need of Income Proof
One of the other advantages of gold loans is that it does not need any income proof. It is just very difficult to get any other loan without any income proof.
6. Interest rates
Loans other than Gold loans carry a high rate of interest, which varies from 12 percent to as high as 19 percent. Whereas in the case of gold loans, the interests can go as low as 7 percent. For example, the Indian Overseas Bank Gold Loan interest rate is as low as 7%. This makes gold loans a much better option in front of other loans even if the amount is large, the money saved due to low rates can be enormous.
Conclusion:
Before going for a Gold Loan at any period, the current price of the gold should not be the only factor to be considered. Numerous other factors influence the functioning of a gold loan and the borrowers must make sure that they go through all these important variables before actually going for a loan by pledging their gold assets.