Gold enjoys a strong emotional bond in every Indian household, treasured as auspicious for celebrations and reserves for the rainy days. And it is this reserve you fall back upon to meet financial emergencies needing funds quickly. A loan against gold is thus your saviour in the crisis offered by gold loan companies in tailored schemes. But, notwithstanding its simplicity and quick disbursal, you may still falter in choosing the best for your needs. More of that later, but first, let us learn what applying for a gold loan online is all about.
What is a gold loan online?
TheGold loan online is secured against gold items pledged as collateral. Thus, gold jewellery, bars, or coins are eligible for the loan’s security. The lender assesses the pledged gold item’s market value depending on its purity and current rate. Accordingly, the LTV (Loan to Value) is fixed, and the terms and conditions are quoted in alignment with your financial standing and preferences. Finally, the loan is disbursed and credited to your account upon acceptance of the terms and the repayment conditions. Though simple on its face, let us consider the pitfalls.
Watch out for the gold loan online mistakes
Loan against gold is commonplace and readily available. While it supports your financial needs in a crisis, it can also fuel your life aspirations. But, circumspection pays in the long run, shielding you from unforeseen hazards. So let us check the various red flags you must not ignore.
1. Failing to Understand the Repayment Structure:
Understanding the gold loans’ repayment structure is critical for your financial planning to prevent default. Choose from the four options usually offered by the gold loan online lenders.
a. Regular EMIs: The most common repayment structure ideally suited for the salaried with a steady income stream. The EMIs are paid during the loan’s tenure, comprising interest and principal components.
b. Partial Repayment: The structure is best suited for businessmen borrowers. You repay the interest and principal in instalments according to your convenience. In the process, you save substantially on the interest outgo.
c. Interest EMI: You pay the accrued gold loan interest in EMI during the loan tenure and the total principal in a lump sum at maturity. The repayment structure is pocket-friendly as the EMI is minimal.
d. Bullet Repayment: You repay the loan at one go at the tenure’s end, comprising the accumulated interest and the principal. The fund cost is higher as the interest is charged monthly and accumulates until maturity.
2. Ignorant of LTV Calculation:
According to the RBI, the loan against gold quantum is capped at 75% of the pledged gold’s evaluated market value. Therefore, the loan-to-value ratio based calculation is critical in determining the loan quantum. On the flip side, the higher the LTV, the higher is the risk. However, it also implies that your loan quantum is higher.
3. Failing to Gauge the Gold’s Value:
You can pledge gold jewellery, coins, bars, biscuits, utensils, and similar articles for the loan. In addition, the gold must be above 18 or 22 carats in purity for acceptance as collateral. However, the gemstones embedded in your jewellery are ignored while fixing the item’s market value. So, recognise the value of the gold you pledge.
4. Failing to Identify the Hidden Charges:
Most lenders fix different charges in their credit products, and the loan against gold is no exception. So, read the fine print of the terms and conditions while applying for the gold loan online. Especially the charges for processing, foreclosure, late payment, and auction-related, to name a few. You can feel its impact on the fund cost if you have not factored in these elements.
Bottom Line:
While a loan against gold serves you well in times of severe financial crisis, you must be alert about the pitfalls of grabbing the first proposal that comes your way. Always remember that you have pledged a valuable household asset while applying for the gold loan online. Simple mistakes might prove costly in the long run as you bear the risk onus in gold loans.