Five key tips to consider before applying for a gold loan

applying for a gold loan

Do you need some capital investment to bring you business back on track? Are you in need of some money immediately to help your family come out of an unexpected medical crisis?

You will be happy to know that one simple, safe and convenient solution to problems like these is the gold loan. If you have gold assets in your home, you do not have to worry about financial emergencies at all. Just approach your offline or online gold loan financing company, deposit your gold asset with them and get the required funds when you need them most.

However, there are few factors that you must consider before applying for a gold loan. Check them out:

  • Knowledge of gold that counts as assets

Before you apply for gold loan, you must know which of the gold items are considered as assets.

The gold asset is a term that indicates any item made from this precious metal. But the concept of a gold asset is entirely different in case of the gold loan.

The banks strictly consider ornaments made from pure gold as assets that you can deposit with them to exchange money.

However, few private financing companies besides banks consider gold coins, bars, and billions as the gold asset.

Thus, you must always check with your financing organization to understand what sort of gold would be considered as a gold asset by them.

  • Understand the method of loan calculation

You need to inquire with your financing institution about the method they will follow for sanctioning your gold loan against your deposited asset.

The general procedure that lending organizations follow is weighting your gold and noting it down somewhere. These institutions then consider the market’s prevailing gold prices on that particular day or for the last few weeks.

Finally, they evaluate your gold asset’s loan amount by comparing this prevailing market rate and its weight. The financing institutions finally deduct and retain a particular percentage of the value and offer you the remaining value as a loan.

In case a financing institution is doing anything that is different and appears complex, rethink and understand if you will apply for the gold loan from it.

 

  • Know how much loan can you get

Before considering any gold finance institution as the ideal one for you, search a bit and find out how much loan your gold asset can fetch. You need to understand whether the institution is appropriate and if the gold loan will be able to meet your purpose or not.

The thumb rule – the percentage of the loan you will get from your financing organization, depends on your gold asset’s purity. If you are depositing an ornament made from 18 Karat gold, the amount sanctioned to you will be much lesser than a gold asset made from 22 Karat gold.

However, you will never get 100% of the market value of your deposited gold as the loan. The reason behind this is strict regulations by RBI in this regard.

Recently, RBI has cleared that none of the financial organizations can offer a loan amount of more than 75% of the gold item’s original market value as loan.

In case your lending firm is not following this, rethink.

  • Clearly understand the EMI calculation

The EMI calculation for your gold loan is supposed to be transparent. It is usually the principle you have taken and the interest that has been levied for the entire loaning period. The total amount will then be divided equally into smaller instalments throughout this period.

The option of smoothly availing gold loan and sailing through your financial needs is only possible if you are aware of the EMIs that will fall upon you. When the amount of EMI is within your reasonable limit, you can pay off your outstanding loans timely and conveniently.

But if your financing institution does not maintain transparency and does not use any tested gold loan EMI calculator, it is a reason to be suspicious. Situations can turn hostile and extra interests, and charges might be levied upon you without your knowledge.

Eventually, the monthly or quarterly EMI amount would exceed your financial capacity, and you may fail to pay the EMI consistently.

You will be penalized for this defaulter, and greater interest rates will be levied on your regular EMI percentage. In the worst of situations, you might even become financially broke.

So, have clear discussions with your financing firm and understand the method of their EMI calculation.

Author: Veronika

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