Gold loan
A loan provided against the gold you pledge by financial organizations like banks and Non-Banking Financial Companies(NBFCs) legally to customers in want or need is a gold loan. The loan is granted for a certain period, and the gold article(Collateral) stays with the lender till the end of the term and is returned after the borrower pays all the owed money. The collateral of the loan, i.e. the gold, should be at least 18 carats and at most 24 carats. The higher the purity of the gold, the more the loan amount. The weight and the gold rate of that particular day also determine the value of the gold. And the amount granted is upto 90% of the gold’s value in most banks and financial institutes. The tenure of the gold loan varies from three months to 3 years for a gold loan. Banks and financial institutes also charge upto 1% of the loan amount to process and approve a gold loan. Prepayment charges are mostly NIL for a gold loan, but a few lenders may charge 1 % of the outstanding loan amount for closing the loan before the end of tenure.
The interest rates of a gold loan
Interest rate is a part percentage of the loan amount that a borrower needs to pay for the loan availed. The interest rate is broadly classified as fixed and floating interest rates. A borrower can choose any of the above mentioned two types to follow. But paying the interest on time without dues and maintaining a healthy relationship with the bank or NBFC at the same time is essential. The interest rate depends on both the tenure and principal amount, and it varies from one financier to another.
Fixed Interest rate: The interest rate is fixed by the bank or financial institute, and it stays the same throughout the tenure. The borrower has to pay the same amount every month till the end of the tenure of the Gold Loan. There are no variations, and the interest amount is widely known as Equated Monthly Instalment(EMI) for fixed interest.
Floating interest rate: Unlike a fixed interest rate, the interest in this option differs from one month to another, depending on the financial market. The interest rate can go high or low, it can even be consistent. As a result, it is unpredictable, and budget planning is complicated.
Fixed interest is better if you are following a budget planning and have many debts to cover as it is the same, and you can be prepared for the income and spendings. It is also advisable when the gold loan tenure is long. On the other hand, a floating interest rate is better suited if you have enough funds every month in your account to cover the variations for every month. However, the interest rate has as much chance of sky-rocketing as that of dwindling. Therefore, a floating interest is advisable for a short tenure. The fixed interest rate of a gold loan varies from 7% to 20% per annum, and the floating interest increases or decreases as per the rate each month.
Manappuram Gold Loan is a Non-Banking Financial Company based in Thrissur, Kerala. The NBFC is highly famous for its gold loan services and attractive offers. It provides a loan amount of up to 90% of the gold’s value to a maximum of Rs 1.5 crore. The interest rate depends on the loan to value ratio and is high for the higher loan amounts and vice-versa. The NBFCS offers both types of interests and has customers nationwide taking out their loans on a day-to-day basis. A gold loan is extremely easy and flexible to avail but paying off the loan is more important. A penalty charge is incurred if the borrower doesn’t pay the monthly instalment on time and the bank or NBFC has the right to auction the gold if continuous payments have been missed.
Also read this: Gold loan's Calculator explanation