Gold loans are a lifesaver when you need quick cash without selling your jewellery. But before you approach a bank or an NBFC with your bangles and chains, there are a few things you should know. People rush into gold loans without reading the fine print. This approach can cost you more than you expect.
Let’s break it down so you don’t make the same mistakes.
What Exactly Is a Gold Loan Application?
Look at a gold loan application as your formal ask to a financial institution to borrow money using your gold as security. You’re not parting with your gold permanently. You’re simply giving it to the lender until you repay your loan fully.
Let's assume that you pledge 20 grams of gold worth ₹1 lakh. Your lender may offer you ₹85,000 to ₹90,000. This is dependent on their . The Loan-to-Value (LTV) ratio represents the proportion of a loan compared to the value of the asset being used as collateral. It’s commonly used in mortgages, gold loans, auto loans, and other secured lending. You’ll need to fill out a form with your ID proof, address, and details of the gold you’re pledging. Some lenders even ask for income proof, though not always.
A word of caution: Many people assume it’s instant. But if your documents aren’t in order or your gold isn’t pure enough, the process can take longer than expected.
The maximum LTV ratio for consumption loans depends on the loan amount, as shown as per RBI's new regulation:
Gold Loan Tips You’ll Wish You Knew Earlier
Want to know how to avoid common mistakes?
- Check the purity: Only gold above 18 c is accepted. If your jewellery has stones or alloy, the value goes down.
- Compare lenders: Research on various lender and opt for the most optimal gold loan interest rate.
- Ask about hidden costs: Processing fees, valuation charges, and prepayment penalties will add up. This will ultimately be charged to your total loan amount.
An illustration: Imagine you want to borrow ₹80,000 at 10% interest for a period of 6 months. That’s ₹4,000 in interest. But if there’s a ₹1,000 processing fee and ₹500 valuation charge, your actual cost is ₹5,500 and not ₹4,000. But if there’s a ₹1,000 processing fee and ₹500 valuation charge, your actual cost is ₹5,500 and not ₹4,000.
A Quick Lesson Here: Make sure to always enquire for a full cost breakdown much in advance, before signing anything.
Understanding Gold Loan Tenure and Repayment Terms
Have you ever wondered how long you can keep the loan?
Gold loan tenure typically ranges from 3 months to 3 years. Shorter tenures may mean lower interest costs; however, you’ll need to repay your loan faster. Longer tenures will give you breathing room, but you’ll pay more in interest.
Let's assume you borrow ₹1 lakh at 12% interest. This means in a 6-month tenure, your interest will be ₹6,000. In a 12-month tenure your interest will be ₹12,000.
Coming to the repayment terms now, some lenders offer monthly EMIs, others allow bullet repayment (pay everything at the end). Bullet repayment may sound wonderful, however it can be risky if you don’t think ahead of time.
A Quick Tip: Always choose EMIs if you have a stable income. It’s easier to manage and less stressful.
What’s Inside a Gold Loan Agreement?
Are you curious about what you’re actually signing?
The gold loan agreement is a legal document that spells out:
- Loan amount and interest rate
- Tenure and repayment method
- What happens if you default
- Terms for releasing your gold
Read it carefully. Some customers ignore clauses such as “auction after 30 days of default” and lose their jewellery. If you miss payments and don’t respond, lenders can legally auction your gold.
If you are still feeling unsure, reach out to your lender to explain the agreement in simple terms. Don’t sign anything you don’t understand.
Common Gold Loan Mistakes That Can Cost You
Do you want to avoid costly errors?
- Not checking the interest rate: Some lenders advertise “low rates” but charge high processing fees.
- Not taking into account your repayment schedule: Missing your EMI payments is harmful. This can lead to penalties. Or worse, auctioning of your precious jewellery.
- Investing in jewellery very close to your heart: If things go wrong, you might lose your precious pieces which hold a lot of emotional value for you.
A Real Life Example: Rani pledged her wedding necklace for ₹70,000. She missed two EMIs and didn’t respond to reminders. The lender auctioned it. She got the money, yes—but lost something priceless. This makes us understand that it is prudent to pledge gold only if you’re willing to part with if in case things you are financially burdened.
Final Thoughts Before You Apply
Are you still thinking about filling that gold loan application?
Here’s what we suggest:
- Do your homework—compare lenders, read the agreement, and plan your repayment.
- Don’t be in a rush. A gold loan is easy to get; however, it is hard to manage if you’re not financially prepared.
- Use the loan sensibly. Be it for medical bills, education, or fixing up your home, ensure that it’s fully worth the hassle and cost.
Conclusion
Gold loans can be an intelligent move if you handle it well. Just like any other financial decision you take, you need to a lot of thought and planning for taking on a gold loan. So, prepare yourself well, ask a lot of questions to your lender, and ensure that you’re fully ready.
Shriram Finance offers gold loans that start from10% p.a, This allows you to borrow up to 75% of your gold's value. Shriram Finance also provides fast disbursal, easy to management repayment tenures, less documentation, and safe handling of your pledged gold.
FAQs
What key information must be double-checked in the application form?
Key information to be double-check in the application form are your name. Check your ID details. Cross-check your gold's weight and purity. Look at the loan amount requested as well. Even a small mistake can slow down your approval process or worse, it can even impact your eligibility.
Is it important to mention the purpose of the loan?
Yes, you’ll need to mention the reason you are taking the loan. You have to be clear whether you are taking it for business, medical, or personal use. Vague purposes such as investing in stocks are typically not allowed.
How does gold loan tenure affect total repayment?
Shorter tenures many times have higher monthly payments but with a lower total interest. Longer tenures will reduce monthly financial burden, however it can increase the overall cost, because of the extended interest that has been accumulated.
What are the risks of not reading the fine print in gold loan contracts?
You might miss important information about auction timelines, penalty charges, or repayment terms. Not reading them can lead to surprise fees or worse, even losing ownership of your precious metal, if you default.
What are usual gold loan application mistakes?
Usual gold loan application mistakes include investing low-purity gold, not checking interest rates, and choosing an incorrect repayment plan. Some customers even forget to check hidden charges such as processing or valuation fees.
Should you include a co-borrower or guarantor?
It’s not typically required for gold loans to add co-borrowers and guarantors, because your precious metal acts as the security. However, if your credit profile is not good, some lenders might instruct you to include them to reduce risk.
How many lenders can you apply to simultaneously for a gold loan application?
You can apply to multiple lenders, but doing so may affect your credit score and confuse your decision-making. It’s wise to compare offers initially, then apply prudently.
What should you ask your lender before signing a gold loan application?
You must always ask about the interest rate, repayment options, penalties for late payment or early closure, and how your gold will be stored with the lender. Be sure to confirm how fast you’ll get your gold back after you make your repayment.