Owning a home comes with great joy and responsibility. While the pride of ownership is satisfying, maintaining your home can get expensive at times. Regular wear and tear, upgrades, renovations etc. require financing that may put a strain on your savings.
Gold loans are emerging as the best way to finance home repairs and renovations. As a highly liquid asset, gold loans for home repairs allow you to unlock its value to meet urgent or planned expenses for your home without having to sell your gold.
If you're considering a gold loan for your home repairs, here are some useful gold loan tips for home repairs to make the right borrowing decision:
Evaluate Your Gold Jewellery
Before applying for a gold loan, evaluate the gold jewellery you plan to pledge. Focus on ornaments that have a high resale value in terms of carat, weight, and design. Heavy traditional jewellery like mangalsutra and bangles work well. Contemporary lightweight jewellery may not get you the best loan value. Segregate the jewellery you wish to pledge and get it appraised by a reputed jeweller. This will help you determine the loan amount you can expect on it.
Research Interest Rates
Interest rates on gold loans for home repairs vary across financial institutions and locations. Compare rates offered by banks, Non-banking Financial Companies (NBFCs) and online gold loan providers in your city to find the best deal. Opt for a financial institution that offers the lowest interest rate on your loan amount. Also, look for those that offer flexible tenure, minimal processing fees and foreclosure options.
Analyse the Loan-to-Value (LTV) Ratio
The LTV ratio is the amount you can borrow against the value of your gold. Most loan providers in India offer an LTV of 75%. However, some private lenders and online loan providers may offer higher LTV, especially for low-ticket gold loans for home repairs. The higher the LTV ratio, the larger the loan amount you can avail against your gold’s value.
Check Gold Valuation Method
Gold valuation involves checking the purity and weight of the gold ornaments to estimate the metal's market value. This is used to determine the maximum loan amount you can get per gram of your gold jewellery. Some loan providers use only the weight to value gold, while others consider purity and weight. Compare the valuation methods and choose a financial institution that offers you the best loan against the current gold rate.
Read the Fine Print
Carefully go through the loan agreement before signing up. Check all the applicable charges like processing fees, late payment penalties, foreclosure charges etc. Make sure you are comfortable with the loan tenure, repayment structure and know the auction procedure in case of non-repayment. Avoid lenders that levy exorbitant charges or penalties.
Assess Repayment Capacity
Evaluate if the Equated Monthly Instalment (EMIs) fits within your monthly budget without causing financial stress. Factor in the interest rate, processing fees and insurance costs to determine your repayment amount. Avoid borrowing more than what you can comfortably pay off each month. You may otherwise risk defaulting which can lead to penalty charges or auctioning of your gold.
Maintain an Adequate Margin on Your Gold
Margin refers to the difference between your jewellery's market value and the loan amount you avail against it. Maintain an adequate margin so that your loan remains within a safe limit compared to the gold's value. This protects you from defaulting if gold rates fall suddenly. A margin of 20-25% on the pledged gold is ideal.
Use the Loan Amount Wisely
Gold loans for home repairs are easy to obtain, but borrow only as much as you need for the intended home repairs. Using the funds prudently for the right home upgrades prevents financial burden later. Prioritise critical repairs and maintenance issues first. Avoid borrowing for cosmetic upgrades that can wait. This keeps the loan amount to a minimum and your home safe.
Compare Prepayment and Foreclosure Options
Enquire about part-prepayment and foreclosure policies of the loan provider. Some may charge hefty foreclosure penalties. Opt for a provider that allows part-prepayments and foreclosure at minimal charges. This gives you flexibility to close the loan early without financial stress, if funds are available.
Consider Top-up Facility
Some financial institutions offer a top-up loan after a certain period of regular repayments. This allows you to borrow an additional amount as per eligibility without fresh documentation. However, avoid unnecessary top-ups and borrow only if you have a critical requirement. Otherwise, it unnecessarily inflates your loan amount and interest payout.
Purchase a Cover for Your Gold
Though you retain ownership of your gold under a loan, unforeseen events like theft or damage can occur. To safeguard your asset, purchase a gold cover from insurance providers using some part of the loan amount. This provides adequate coverage against risks, and you get claim settlement in case of unfortunate incidents.
Choose the Right Repayment Tenure
Longer loan tenures of 3-5 years reduce your monthly outgo but increase the overall interest paid. Short tenures of 6-12 months involve larger EMIs but a lesser interest burden. Choose a tenure that aligns with your repayment capacity and total costs. Avoid repayment terms exceeding your requirement, as it will only incur avoidable interest charges.
Track Gold Rates
Fluctuating gold prices directly impact your loan in terms of the LTV ratio and available margin. Keep an eye on gold rate changes and how they affect your loan's standing. Maintain the requisite margin by making timely repayments. In case of drastic gold price drops, you may need to provide additional collateral to keep the loan secured.
Conclusion
Gold loans can be an efficient financing tool for home repairs if planned properly. By evaluating your needs, choosing the right loan amount and financial institutions, and making regular repayments, you can fund critical home maintenance work in a financially efficient manner. However, you must compare all options before deciding and borrow only what you need to avoid financial stress. With proper planning and discipline, a gold loan can sufficiently meet your requirements for renovations without much hassle.
