HomeBusiness7 Mistakes to Avoid When You Get a Loan Against Your Gold

7 Mistakes to Avoid When You Get a Loan Against Your Gold

A loan against gold is an easy financing option during a financial crisis. Since it is a secured financial product, you need not think about your low credit score. You can access quick funds with primary KYC documents only – ID proof and address proof.

To get the maximum benefit of a gold loan, you should avoid a few common mistakes while making the loan application. 

Here are the seven common mistakes that need your attention: 

Wrong Loan Repayment Tenure

Most borrowers choose a long loan tenure to reduce the EMI. The figure of EMIs might be decreased in the long term loan, but it makes the loan costlier till the loan closure. It would be best to use a gold loan calculator online to determine the right EMI with a suitable repayment term.

Wrong Mode of Repayment

A loan against gold is called an easy loan – one of the reasons is its flexible repayment schedule.  

  • You can pay interest during the loan tenure and the principal at the loan closure date.
  • You can pay both interest and principal after a year also.

Choose an option that can help you stabilise your cash flow with enough flexibility.

Trap of High LTV 

Choosing high LTV gold pushes you towards high-interest rate gold loans. Lending institutions can offer you a high LTV but higher interest rates. Make sure you look for a lower interest rate over a higher LTV to avoid such traps. You can choose a lender offering up to 75% LTV.

A Loan Application without Calculating Exact Interest Rate

Make sure you read all points in the gold loan agreement carefully. Gold loan-related various terms and conditions may increase the final interest rate. Even interest rates start increasing after a certain duration of the loan. Apply for a loan against gold only after knowing the final interest rate.

Not Knowing Your Gold 

It is always recommended to evaluate your gold purity before applying for gold loans. The loan amount depends on the valuation of gold determined during the evaluation process by the lender. Higher purity can offer you a higher loan amount. Gold finance companies accept gold with a purity of 18-24 karats. 

Neglecting Auction Terms

Gold loan providers can sell the pledged gold if a borrower defaults. You should necessarily know about the terms and conditions of the lender for the auction even before making a loan application. Lenders are directed to allow the borrowers ample time to repay a loan against gold before announcing an auction.

Ignoring Lender’s Credibility Factor 

Investing in gold is a common activity among Indians. Gold contains monetary value as well as emotional value for them. For the utmost safety of your gold, you should know about the lender’s credibility and reputation in the market. Otherwise, you may put your assets at risk. You can choose a well established gold finance company like Muthoot FinCorp, serving 100,000+ customers daily. 

You should check for the after-sales services of the lending institutions. During the loan tenure, you may face certain challenges needing the lender’s support. All these mentioned factors will surely help you to stay away from hassles.

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