Gold loans are a form of financing that is backed by the value of a borrower's gold. There are many advantages for people who need to borrow money. However, they should be aware of the risks involved.
A lot of people use gold to get instant funds in times of need. This process of getting funds through pledging your gold at any bank, private institution, or NBFC to get funds is called a gold loan. You can use the money you get from gold loans for various purposes. Banks don't monitor the end use of the funds given through gold loans. So the funds can be used for multiple purposes at the same time.
Borrowers have to repay the amount they get from the gold loan along with the interest rate. However, people often forget that there are factors that should be kept in mind while applying for a gold loan. Some of them are mentioned below:
Interest Rate:
It is the amount that will be charged by the banks to provide you with a gold loan facility. The interest rate charges for gold loans are comparatively less than other loan options. It varies between 7% to 13%. The interest rate usually differs from one bank to another, but there are many factors that change your interest rate. For example:- If you pledge any other asset along with your gold ornament, then you can reduce your gold loan interest rate even more.
Credibility:
If you're applying for a gold loan, then it's essential to check the bank's credibility before making any decision. Do a thorough background study on the bank that you have chosen to apply for a gold loan. A lot of people prefer banks that are regulated by the Reserve Bank of India to apply for a gold loan as those banks are entirely transparent and are safe to pledge your gold. Some individuals prefer taking a gold loan from a neighbourhood jeweller. However, have you ever wondered that they might change the diamond and stones of your hold ornament with fake ones? So it's very important to choose a credible bank where your gold can be safe. Example: Gold Loan from SBI , Axis Bank, ICICI Bank, etc.
Loan Amount:
The loan amount that the bank gives to the customers is only 70% to 85% of their gold amount; banks don't give the full amount of the gold that has been pledged. The lesser your gold loan amount is, the lower the interest rate will be charged. However, if your loan amount is high, then banks will charge you a high-interest rate.
Repayment:
Banks give customers the flexibility to choose a repayment structure and tenure according to their repayment capacity. So customers can calculate their income and expenses and then decide the repayment structure they have to choose. There are numerous online tools that can be used to calculate your repayment structure. A gold loan calculator is one of the most popular tools. However, it is advisable to choose a shorter repayment period so you won't end up paying more money as interest.
Charges:
There are a lot of fees/charges that are charged by the bank. However, there are many banks and NBFCs that have hidden costs mentioned between the terms and conditions, so it's essential to choose a bank that will be completely transparent with the charges and fees that the borrower has to pay. Read all the documents related to gold loans carefully before making any decision.
A gold loan is a suitable option if you're looking to get quick fund assistance. However, it is crucial to choose a lender that is entirely transparent with you from day one. You can contact your family advisor or any other financial helpline if you are facing any difficulties regarding the loan process.
Conclusion -
There are a number of financial banks and NBFCs that provide the facility of a gold loan. So it's important to compare all the options available and then choose your ideal loan option.
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