India is one of the largest importers of gold in the world. As we know, gold is used for making precious jewellery, is often kept as assets. Many people consider gold a good investment option, which they can sell off anytime they want. Gold loans, on the other hand, are one of the most popular types of loans in the market today. Purchasing a gold loan is quite convenient, as it is easily accessible. However, you must remember to avoid these five mistakes while purchasing a gold loan-
• Being unaware of the right kind of gold- People in India consider gold an important asset. Moreover, it has a lot of sentiment attached to it. That is why people are more inclined towards repaying the gold loan. This will ensure that the jewellery will stay with them always, as banks tend to use gold jewellery as collateral. You cannot give gold bars or gold bullions as collateral. The only time you can use gold coins as collateral is when the gold is 99.99% pure with weight not exceeding 50 grams.
• Avoiding LTV calculation- LTV stands for Loan to Value ratio and signifies the ratio of the loan to the net worth of an asset. Generally, creditors use this to calculate the risk factors. The more is the LTV, the more will be the risk. The creditors calculate the value of your gold and based on that, they fund a loan amount of up to 75% of the total cumulative value. For example, if the cost of your gold is Rs.5 lakhs, then you can get a loan of Rs.4 lakhs.
• Not exploring more- Before you select a gold loan make sure that you go through all the options available in the market and compare them so that you go for the one that is the right fit for you. Carry out as much research as you can regarding gold loan finance, all the financial institutions and banks, and then shortlist a few potential options. In case you have a few doubts, you can also consult your financial advisor. Most importantly, remember to choose a gold loan option that will offer you a higher Loan to Value ratio or a lower interest rate.
• Failing to verify your creditor’s credibility- Since a gold loan is a secured form of a loan, you will have to protect it with collateral (for which gold is used generally). Your collateral stays with your lender or creditor until you pay off the loan. In case you default, your creditor will use your collateral to regain a part or the entire amount, owed by you. This might be a great way to secure the creditor’s money but ensure that your creditor is a genuine person so that you collateral remain in safe hands. Do some thorough researches before you trust someone, as it is your hard-earned money is on the line.
These days, there is a loan for almost everything, which makes it convenient for us to fulfil our needs and requirements. In addition, gold, being a precious metal is something that is revered and sought after by the whole country.
• Being unaware of the right kind of gold- People in India consider gold an important asset. Moreover, it has a lot of sentiment attached to it. That is why people are more inclined towards repaying the gold loan. This will ensure that the jewellery will stay with them always, as banks tend to use gold jewellery as collateral. You cannot give gold bars or gold bullions as collateral. The only time you can use gold coins as collateral is when the gold is 99.99% pure with weight not exceeding 50 grams.
• Avoiding LTV calculation- LTV stands for Loan to Value ratio and signifies the ratio of the loan to the net worth of an asset. Generally, creditors use this to calculate the risk factors. The more is the LTV, the more will be the risk. The creditors calculate the value of your gold and based on that, they fund a loan amount of up to 75% of the total cumulative value. For example, if the cost of your gold is Rs.5 lakhs, then you can get a loan of Rs.4 lakhs.
• Not exploring more- Before you select a gold loan make sure that you go through all the options available in the market and compare them so that you go for the one that is the right fit for you. Carry out as much research as you can regarding gold loan finance, all the financial institutions and banks, and then shortlist a few potential options. In case you have a few doubts, you can also consult your financial advisor. Most importantly, remember to choose a gold loan option that will offer you a higher Loan to Value ratio or a lower interest rate.
• Failing to verify your creditor’s credibility- Since a gold loan is a secured form of a loan, you will have to protect it with collateral (for which gold is used generally). Your collateral stays with your lender or creditor until you pay off the loan. In case you default, your creditor will use your collateral to regain a part or the entire amount, owed by you. This might be a great way to secure the creditor’s money but ensure that your creditor is a genuine person so that you collateral remain in safe hands. Do some thorough researches before you trust someone, as it is your hard-earned money is on the line.
These days, there is a loan for almost everything, which makes it convenient for us to fulfil our needs and requirements. In addition, gold, being a precious metal is something that is revered and sought after by the whole country.
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