Gold loan is where the customer has to pledge gold like ornaments, jewellery, coins etc. as collateral for a loan. This gold is used as security in case any default occurs. The loan amount sanctioned depends upon the specific percentage of the value of gold offered by a lender. Gold loans types of loans are short term loans having repayment tenure of one month to a few years.
If you need cash urgently and sure that you will pay the amount along with interest in a short period, then it is a good option for you. You can use a gold loan interest rate calculator to know the exact amount you will have to pay. Gold finance is one of the best ways through which you can help yourself in difficult financial times.
But before taking a gold loan, here are few things that one must keep in mind to get the best out of it.
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1. Interest rate:
Although interest rates of gold loans are cheaper than personal loans, it can vary from lender to lender. Always check interest rates with different lenders to get the best deal possible. The interest rates range from the amount of loan you are taking. If the cash is lower than 50% to 60% of the actual value of gold, then interest is low compared to other amounts. However, if the amount borrowed is more, then the interest rate is also high.
2. Check whether a lender is trusted or not:
Another essential fact that one must keep in mind is to check the lender’s credibility. Look for reviews online or ask your family and friends for a referral. Always check the lending history and authenticity of the lender. Make sure that you have read all terms and conditions carefully before signing any gold finance contract. Changes of fake buyers are high as most people turn towards gold loans instead of other loans.
3. Amount of loan:
In gold finance, no lender will give you a 100% amount of your gold. The loan amount can vary from 50% to 75% of the gold value. The percentage is decided upon by many factors like the purity of ornament, the current gold rate, and the lender’s policies. The value of gold is calculated in two ways, one is taking the average of the last two weeks’ prices, and the other way is by considering the current day price.
4. Repayment of loan:
After taking a gold loan, the next thing that comes in mind is how to repay your loan. As a gold loan is a type of secured loan, your gold is kept as security. In the case of default, the provider is at no risk. Taking a gold loan is a great deal as you get instant cash with low-interest rates. However, you should only apply for it if you are sure that you can repay the loan in time. If you are not able to pay in agreed upon time, you may end up losing your precious gold.
5. Hidden charges and fees:
Many lenders hide many types of different costs and expenses. Some lenders charge about 1% of the loan amount as processing fees, but lenders depend upon it. Always check with the lender before signing the contract.
6. Tenure of the loan:
These loans are short-term loans that vary from 12 to 14 months. Ensure that you select the tenure in which you are confident that you will be able to pay; otherwise, you may lose your gold.
7. Versatility of gold loans:
Gold loans are versatile, i.e. you can pledge your gold jewellery, ornaments, bars or coins. Depending on the quality of gold, the amount of loan varies. Gold bars and coins have a high purity of the gold as compared to ornaments. In the case of jewellery, only the weight of gold is considered. Other elements, like precious stones and gems, are not taken into consideration.
As gold finance is becoming popular these days, the number of fraud associated with it has also increased. The above article provides you with the best advice regarding a gold loan. However, make sure that you check the loan provider’s credibility and get the best deal out there. Use a gold loan interest rate calculator to compare credit options of different lenders.