Skip to main content

Good Loan

Why Is It A Good Loan?:

Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.

 
   For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.


   Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loans come at a lower cost than other forms of personal loans.


   Also, within the gamut of secured loans, a loan against gold has its own advantages. You get higher loans against your gold compared to loans against securities.


   For loans against securities, you can borrow only up to 50% of the value of your shares or your equity mutual funds. A loan against property is a good option only if you need a big amount. Otherwise, it doesn't make financial sense to mortgage your property for short-term liquidity needs.


   So, if the value of your shares is 1 lakh, you are likely to get a loan of only up to 50,000 against them. In case of gold loans, this proportion is greater.

A Look at Gold Loans:

Banks and non-banking finance companies (NBFCs) such as Muthoot Finance, Muthoot Pappachan Group, Manappuram Finance are active players in the gold-loan segment. Once you pledge the gold, you will get a loan amount of 70-95% of its value. The bank/NBFC carries out a valuation of the gold by a set of professionals who follow traditional methods of checking gold. It can include just rubbing the metal and using the caratmeter.


   The bank or NBFC keeps the gold in its possession until the borrower pays off the dues. But is it safe to park one's jewellery with banks and NBFCs? The gold jewellery is sealed in a tamper-proof manner in front of the customer and kept in the bank's safe deposit. In fact, the Reserve Bank of India (RBI) has introduced specific guidelines and standard practices for bank lockers. The NBFCs have no stipulations on lockers. But even we maintain the same locker requirements as banks, given the risks associated with the precious yellow metal. It is our bread and butter and we cannot afford to compromise on safety measures

 


   The maximum tenure for these loans is three years and the interest rate falls in the range of 11-20%. The rate largely depends on how much security (in this case, the gold jewellery/coins/bars) the borrower leaves with the bank. Also, repayment can be structured as per the borrower's convenience. One can just pay the interest amount with the principal as a lump sum amount instead of periodic EMIs. After the repayment of the loan, the customer needs to come to the branch to collect the jewellery. The process is simple and the delivery of jewels is done across the table at the branch on repayment of the dues.

Borrow For The Right Reasons:

People may borrow for various reasons such as repayment of a personal loan, unexpected expenses or any other unforeseen event. Often, people also borrow against gold as a bridge loan or for giving the down payment for big purchases such as a car or a home. But you should avoid using gold to borrow for margin money as you would have to repay the two loans on a single salary. That could dent your personal finances. Also, people should raise the loan against gold to the extent of their repaying capacity and not to the extent of the value of gold. In case one needs a higher amount and knows that he cannot repay the loan, it's better to raise the fund by selling the gold instead of raising a loan against it.


Gold loans are hassle-free and are available at the shortest possible time. But check the end use of these loans. It shouldn't happen that you have to forgo your spouse's wedding jewellery for some consumption needs if you are unable to repay the loan.

The Gold Exchange

1
Banks usually lend only against jewellery

2
Restrict the loan amount to your repayment capacity, not the value of gold

3
Once you pledge your gold, you will get a 70-95% loan against its value

4
Professional examiners check the gold in the customer's presence at the bank

5
The mortgaged gold jewellery is sealed in a tamper-proof pack and kept in the safe deposit

6
The jewellery is returned at the bank branch on repayment of the loan

7
There is no prepayment penalty on gold loans

 

Popular posts from this blog

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now