The below article is authored by Priyank Kothari, Director of Arvog
Gold loans are the most popular and reliable ways to secure instant funds. With their ease of access, minimal documentation, and quick disbursal process, they stand out as the smartest credit option tailored for emergencies or planned financial needs. Be it for a medical emergency, funding a wedding, or expanding a business, gold loans help unlock the potential of your treasured assets without parting with them.
However, before you take a gold loan, there are certain factors you must be aware of to make an informed decision.
Key Factors to Consider Before Taking Gold Loan
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Rate of Interest
The rate of interest on a gold loan determines the cost of borrowing and can vary across lenders. In general, gold loans have relatively low-interest rates compared to unsecured loans like personal loans, as the gold you pledge serves as collateral, minimizing the lender’s risk.
However, it’s important to compare rates offered by different lenders before making a decision. Many lenders advertise attractive rates, but you should also account for additional fees like processing charges, appraisal fees, and penalties for delayed payments. Look for lenders who provide transparent and competitive rates to avoid hidden costs.
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Repayment Options
Gold loans are highly flexible when it comes to repayment. Lenders usually offer several repayment methods tailored to suit different financial needs, such as:
- EMI Payments: Pay off the principal and interest in equated monthly instalments.
- Bullet Repayment: Pay the entire loan amount along with interest in one lump sum at the end of the tenure.
- Partial Repayment: Pay interest periodically, with the principal amount settled at the end of the term.
- Interest-Only Payments: Pay only the interest periodically, with the principal amount repaid in full later.
Choose a repayment method that aligns with your financial capabilities and cash flow to avoid unnecessary financial stress.
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Tenure of Loan
Gold loans are typically short-term loans, with tenures ranging from a few months to a few years. Most lenders offer tenures of up to 12 or 24 months, but some may allow extensions depending on their policies.
When selecting the tenure, strike a balance between your repayment capacity and the urgency of your financial need. Opting for a longer tenure may reduce monthly payment obligations but could result in higher overall interest costs. Conversely, shorter tenures may save on interest but require higher payments.
Ensure you discuss the terms with your lender to understand the implications of your tenure choice and any flexibility for extensions if needed.
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Loan Amount
The loan amount you can borrow depends on the value of the gold you pledge. Most lenders provide loans based on the loan-to-value (LTV) ratio, which is capped at 75% by regulatory bodies like the RBI. For instance, if your gold’s market value is ₹1,00,000, you can typically borrow up to ₹75,000.
Factors like gold purity, weight, and current market prices significantly impact the loan amount. Higher-purity gold (22K or 24K) fetches higher values, while gold embedded with stones may not contribute fully to the valuation.
It’s advisable to approach a lender who offers fair and transparent appraisal practices. Be sure to verify the weight and purity assessment process to ensure you receive a fair loan amount.
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Lender’s Legacy
The reputation and legacy of the lender play a crucial role in the gold loan process. Gold is a valuable and sentimental asset, and trusting it with a credible and well-established institution ensures your peace of mind.
Look for lenders with a proven track record in offering gold loans. Check for their credibility through customer reviews, industry reputation, and their adherence to transparent practices. Established lenders often offer better customer service, clearer terms, and safe storage for your pledged gold.
Additionally, ensure that the lender provides insurance coverage for your gold while it is in their custody. This guarantees that your asset remains protected throughout the loan tenure.
Conclusion
A gold loan is a powerful financial tool, especially in the Indian context, where gold is often viewed as a safety net. With the right knowledge about interest rates, repayment options, tenure, loan amounts, and the lender’s legacy, you can make an informed decision and maximize the benefits of a gold loan. This is where Arvog comes in, which is a new-age, AI/ML-powered, customer-centric finance company that makes digital lending quick, efficient, and easy. As an informed borrower, one must go through the Key Facts Statement before signing the loan agreement.
By unlocking the potential of your cherished assets, gold loans offer a pathway to financial stability and growth without compromising on your long-term investments. Whether it’s for emergencies, education, or business expansion, this flexible credit option ensures you’re always prepared for life’s financial challenges.
Arvog is a new-age, AI/ML-powered, customer-centric finance company that makes digital lending quick, efficient, and easy. We see worth in in lending wings to people’s aspirations, hopes and dreams. We believe purpose-driven credit can be a true-life enabler. Arvog is here to lend a helping hand, with affordable loans designed specifically for those who need them the most.
Another authored article by Priyank Kothari, Director of Arvog
