Everything about Gold Loan – A way to grow in Life!!

If we speak in a rational way, money attracts money, and accumulation of the same becomes wealth to an individual. We all purchase gold at some point of time in life, which may be in the form of bars, biscuits, coins or ornaments etc. as the same is been considered the most trusted asset to an individual.

Here I will discuss about what gold loan is, how to get it and why to take it?

What is Gold Loan:

Loan in terms of money against gold is termed as Gold loan. All you need is to place your gold to any bank or NBFCs for a pre-specified period and the loan is right in your pocket. Of course, this loan just like any other loan comes with an interest cost. Just like in the case of personal loan, Home loan, Term Loan or may also be an overdrawn loan like Cash Credit account.

Any individual having in possession of gold can pledge it with the authority and get a loan, and the loan amount “Loan to Value Ratio (LTV)” is calculated on the basis of value of gold on that particular day along with its purity.

Loan to value Ratio (LTV):

As the metric says, it’s the value of money you can get against your gold. NFBCs provide loan up to 60% of the value of your gold whereas; banks may provide up to 70 to 75% of the value of gold as a loan.

Rate of Interest:

Interest rate on Gold loan ranges from 11.5% to 14% per annum. This loan never requires any EMI payment except, that you need to pay interest on a monthly basis and at the end of the tenure the principal amount. The tenure in this case is generally one year, and there are no prepayment charges, if you happen to pay loan before the tenure ends. Though few banks or non banks may charge prepayment charges, gather information on this before taking the loan.

Why gold loan:

1.To grow in life you need investment and for investment you need funds, but since its availability is limited, at times you get stuck due to lack of fund and cannot utilise your potentials in full capacity. At, this juncture a gold loan is a pure solution as it is easy to get a gold loan instantly.

2.You can always put you gold in some productive use by taking a gold loan rather than keeping the same idle in bank lockers or at home. Just the way you invest all the available funds with you to get the maximum return, then why to keep gold at home or in bank lockers rather convert it into funds and invest to increase you return in value terms.

3.In life there could be emergencies such as medical treatment, unplanned expense or any immediate debt repayment. To cope up with these situations one can always go for gold loan. All you got to do is carry your id proof, address proof and gold to the NFBCs or banks and get an instant loan.

Some basics to check before taking a home loan:

The charges involved such as Loan processing charges, late payment of charges etc.

The most important things customer should look are at the security of their valuables, transparency etc. There should not be any hidden cost, security is about how well the gold is physically secured, internal system & procedure of the company so that no mal function cannot happen. You should ask & collect all the related documents from the bank or NBFC before finalizing any loan.

Keep a track of Gold prices!!!

Gold price changes daily. It may go up or may go down. In cases when price increases there is no need to worry, but in cases when price go down be cautious.

Let’s understand it with an example.

In the above chart we can see that when the price of gold increases the exposure of bank on your gold loan reduces. But, when the price decreases to Rs.24, 000 per 10gm bank’s exposure increases and in this particular case the exposure has increases to 102% percent.

Under such circumstances, bank may ask you to pay half or full loan amount provided to you against gold. And in case you are unable to pay, you may be treated as a defaulter by the bank, and bank might auction your gold in the open market and recover the loan amount and other charges.

Thus one has to be very careful while taking a gold loan..

Happy Investing!!!!