Gold enjoys a strong emotional connection in every Indian home, treasured as an auspicious omen for celebrations and reserves for rainy days. And it is on this reserve that you rely to deal with financial emergencies requiring funds quickly. A loan against gold is therefore your savior in the crisis offered by gold loan companies in tailor-made schemes. But, despite its simplicity and fast disbursement, you may still hesitate to choose the best one for your needs. More of that later, but first, let’s learn what applying for a gold loan online is all about.
What is an online gold loan?
The online Gold loan is secured against gold objects given as collateral. Thus, gold jewellery, bars or coins are eligible for the loan guarantee. The lender assesses the market value of the pawned gold item based on its purity and the current rate. Accordingly, the LTV (Loan to Value) is fixed and the terms and conditions are indicated according to your financial situation and preferences. Finally, the loan is disbursed and credited to your account upon acceptance of the terms and conditions of repayment. Although simple at first glance, let’s consider the pitfalls.
Beware of Online Gold Lending Mistakes
Lending against gold is common and readily available. While it meets your financial needs in times of crisis, it can also fuel your life aspirations. But, circumspection pays off in the long run, protecting you from unforeseen hazards. So let us check out the various red flags that you should not ignore.
1. Not understanding the reimbursement structure:
Understanding the repayment structure of gold loans is essential for your financial planning to avoid defaults. Choose from the four options usually offered by online gold loan lenders.
a. Regular NDEs: The most common repayment structure is ideal for employees with a stable income stream. EMIs are paid over the term of the loan, including interest and principal.
b. Partial refund : The structure is best suited to business borrowers. You repay the interest and the principal in installments according to your convenience. In the process, you save significantly on interest expenses.
vs. EMI interest: You pay the accrued charges interest on gold loans in EMI over the life of the loan and the total principal in a lump sum at maturity. The repayment structure is user-friendly as the EMI is minimal.
D. Refund per ball: You repay the loan all at once at the end of the term, including accrued interest and principal. The cost of the fund is higher because interest is charged monthly and accrues until maturity.
2. Unaware of the LTV calculation:
According to the RBI, the loan against the quantum of gold is capped at 75% of the assessed market value of the gold pledged. Therefore, the calculation based on the loan-to-value ratio is essential in determining the loan amount. On the other hand, the higher the LTV, the higher the risk. However, this also implies that your loan amount is higher.
3. Not evaluating the value of gold:
You can pawn gold jewelry, coins, bars, cookies, utensils, and similar items for loan. In addition, the gold must have a purity greater than 18 or 22 carats to be accepted as collateral. However, gemstones embedded in your jewelry are ignored when determining the market value of the item. So recognize the value of the gold you promise.
4. Failing to identify hidden fees:
Most lenders set different fees in their credit products, and lending for gold is no exception. So, read the fine print of the terms and conditions when applying for a gold loan online. Especially processing, foreclosure, late payment and auction related fees, to name a few. You can feel its impact on the cost of the fund if you haven’t taken these things into account.
While a loan against gold serves you well in times of severe financial crisis, you should be alert to the pitfalls of grabbing the first deal that comes your way. Always remember that you have pledged a valuable household asset when applying for an online gold loan. Simple mistakes can prove costly in the long run, as you bear the risk of gold loans.