The gold loans sector of India is likely to grow at an annual rate of 15.7% in the FY22, even after an economic downturn last year. Individuals are applying for a gold loan to meet short-term financial requirements, making it one of the most popular financial instruments.
In India, selected financers allow individuals to opt for digital borrowing. Borrowers can apply for a gold loan and get it sanctioned from the comfort of their homes. Like any other financial credit, in the case of gold loans, individuals also need to consider some factors before applying for one.
Factors to consider before availing of a gold loan
Gold loan interest rate
Due to its secured nature, the interest rate on a gold loan tends to be lower than other financial credits.
Borrowers can compare the interest rates of gold loans with various lenders. However, the following factors decide the gold loan interest rate:
- Loan amount
- Gold purity
- Repayment tenor
- Current market price of gold
- Rate of inflation
Hence, before applying for this advance, individuals should know the total gold loan interest payable to ensure smooth repayment.
- Rate per gram
Also known as LTV, the rate per gram offered decides the gold loan corpus. The Reserve Bank of India capped gold loan LTV to 75%. It means if one pledges gold articles worth Rs. 5 lakh, lenders can extend up to Rs. 3,75,000.
Note that the gold price fluctuates almost every day and a lender disburses the loan as per the current market valuation. Lenders also decide the loan amount after checking the tenor and repayment capacity of applicants.
Moreover, individuals can utilise a gold loan calculator and enter the details of jewellery to check the maximum loan amount they are eligible for.
- Repayment options
Irrespective of the loan size, on-time repayment is essential to clear the debts faster and upkeep the credit profile. However, a gold loan accompanies flexible repayment options as follow:
- Pay the interest upfront and principal before the tenor ends.
- Pay interest periodically and principal later.
- Regular EMI regime.
Individuals can choose any of the options above while servicing gold loans as per their repayment capacity. They should also consider their debt-to-income ratio before selecting an option.
Features and benefits of a gold loan
Gold loans come with various features and benefits to meet urgent financial requirements. Some of them are:
- Quick disbursal
Usually, gold loans get disbursed quicker than other types of loans. After the gold appraisal process completes, the financer disburses the loan amount to an applicant’s bank account.
- Flexible repayment
Gold loans come with a flexible repayment facility. Also, individuals can opt for a part-release facility. One can repay the interest-only and pay the principal amount later during the repayment tenor.
- No end use restriction
Unlike other secured loans like home loans, gold loans have zero end-use restrictions. This means a borrower can utilise the loan amount to invest in business, college admission, wedding, medical expenditure etc.
- No impact of low CIBIL score
CIBIL scores generally don’t have any effect on gold loans. The individuals need to have gold assets to apply for a loan amount. Ideally, the CIBIL score needs to be above 750 to obtain a loan from the lenders. However, in the case of a gold loan, new-to-credit borrowers can also get the loan amount.
Though having a higher credit score may attract financers to approve the gold loan process faster.
Document required for a gold loan
Generally, applying for a gold loan requires minimum documents as compared to other financial credits. Before applying for gold loans, intending individuals need to get these documents handy. Individuals need to submit KYC as gold loan documents.
Individuals need to check these factors before they apply for a gold loan. Assessing these factors may ensure the individual gains the maximum amount for their pledged assets.