Lower interest rates are attractive, but watch out for extra charges Experts advise it is a loss if you are not able to get your gold back as you get only 70 per cent value as loan
TAKING loan against gold is shown to be the easiest way to raise money either for business or to buy an asset like a house. With Kerala-based gold loans companies Manappuram and Muthoot Finance taking the gold loans business pan-India there are advertisements galore on the benefits of taking a gold loan.
But gold loans are not for everyone and there is more than what meets the eye when raising loans against gold. Here is a checklist on what to look for when taking a gold loan.
Do you really need a gold loan? Gold loans were earlier taken mostly by traders and businessmen to meet the credit shortfall in their business cycle. Today, the salaried class is also being encouraged by the companies to take gold loans since the interest rates are low compared to personal loans or credit card cash advances.
Taking a gold loan to meet a shortfall in the down payment of housing loans is okay but taking a gold loan to trade in the stock markets or to service credit card dues is a certain no-no.
How much money can be raised through gold loans?
It depends on the amount of gold pledged. On paper NBFCs are believed to give 75 per cent of the value of gold against 60-65 per cent by banks but due to the stiff competition many NBFCs are giving even 85-90 per cent of the value of gold as loan. The loan amount could vary anywhere between Rs 25,000 to about Rs 10,00,000 while few NBFCs offer loan amounts more than that.
What are the interest rates on gold loans?
Here again there is a difference between NBFCs and banks. NBFCs charge 20-24 per cent as against 12-14 per cent interest rates charged by public sector banks but NBFCs are believed to be faster in disbursing gold loans with many promising loan processing time as low as five or even three minutes.
What are the other charges? One should not get carried away by the attractive interest rates on gold loans as there are half a dozen other charges for gold loans like the handling and processing fee of about 0.25-0.50 per cent, gold assessing charges of about one per cent and also custodial charges for safekeeping of your gold. Like most other loans gold loans too come with pre-closure charges though a few NBFCs promise exemption of the charges.
How is the repayment process?
Many NBFCs allow the borrower to repay the loan as soon as he gets the money and retrieve his gold. Here the interest would be charged only on the basis of the number of outstanding days of the loan, which could be as less as three days. Banks on the other hand have an organised repayment structure like any other loan.
When it comes to gold loans, what many experts advise is that one can take a loan against gold only when one is sure of repaying the loan and getting the gold back otherwise, there is a possibility of losing the gold despite having taken only 70 or 80 per cent of its value as a loan.
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