People of India find it auspicious to buy gold, especially on special occasions and festivals. For generations, people have been investing in gold and passing it down to future generations. The metal rarely tarnishes or loses its value with time or economic conditions, making for a reliable source of financial stability in times of need.
Gold loans are a suitable option for those who want quick funds at a reasonable cost. These loans allow borrowers to unlock the value of their gold without losing ownership. There are several benefits of gold loans, such as quick processing and capital disbursement, attractive interest rates, convenient online application process and flexible repayment terms, making it an attractive option for many. Additionally, these loans come with no end-use restrictions and easy-to-meet criteria, allowing borrowers to apply conveniently and use the borrowed amount at their discretion.
However, there may be instances where, without a proper understanding of the gold loan terms, borrowers can make poor financial decisions that may have long-term consequences.
Not Analysing or Overanalysing Gold Purity
The loan amount you can borrow depends a lot on the purity of the gold pledged. The term Carat/ Karat is used to measure the purity of gold during the gold appraisal process. During the gold appraisal process, lenders assess the purity and weight of the gold to calculate the Loan-to-Value (LTV) ratio. Higher purity and a greater weight generally allow for a larger loan amount. This value is calculated on the gold parts of the jewellery and not on the metals, gems and stones.
Before approaching a lender, getting your gold ornaments assessed for purity can be a good choice to make an informed decision about the borrowing amount. Independent tests at a BIS-certified jeweller can give you a fair idea of what to expect during the valuation process performed by the lender. Subsequently, an online gold loan calculator can be used to help gauge your loan eligibility and borrow smartly.
Not Comparing Interest Rates
Among the common mistakes many borrowers make is not comparing different gold loan schemes and opting for a borrower that offers higher interest rates. Gold loan interest rates can vary considerably based on the loan scheme you opt. These interest rates can be divided into two types – fixed and floating rates of interest.
Fixed Interest rates remain the same throughout the loan tenure despite the market conditions. These terms make financial planning and budgeting simpler. Floating interest rates, also known as variable interest rates, fluctuate with the market conditions.
Lenders might adjust the interest offered based on current market conditions and perceived risk. By comparing the rates, you can choose a lender that offers the most competitive interest rate for your gold loan. Opt for a lender with transparent policies and who offers competitive gold loan interest rates to mitigate overpaying your EMIs.
Failing to Consider the Current Market Rates
A common mistake many borrowers make when applying for a gold loan is not analysing the current market conditions and ongoing gold rates. These rates vary from city to city due to local demand, taxes, and prevailing market conditions. If borrowers apply for a gold loan when the prices are temporarily low, they may end up receiving a lower amount. Therefore, it is better to start by checking the gold loan per gram rate before proceeding with the application, as these rates can significantly impact the loan amount you can borrow against the value of your gold.
By avoiding these common mistakes and understanding how to evaluate gold loan value, you can secure the right gold loan as per your needs.
