Gold loans have become an increasingly popular financial instrument in India in recent years. And Indian households are known to amass gold as one of the many ways of investments. As such, gold loans can often allow you to unlock the value of your idle gold assets and get access to funds quickly.
Gold loans provide funds at relatively low interest rates compared to other unsecured loans. This makes them an attractive borrowing option for many. However, you need the right strategies to get the best deal on your gold loan. This blog shares fast gold loan approval tips and tricks to help you secure a low-interest gold loan.
Tip 1: Choose the Right Lender
The first step to getting a low-rate gold loan is selecting the right lending institution. Compare interest rates and other charges of banks, non-banking financial companies (NBFCs), and dedicated gold loan companies. Go with a financial institution that charges low interest and processing fees.
Here are some aspects to evaluate to secure a low-interest gold loan:
- Interest rates: This is the most crucial factor. Compare the interest rate on loan amount charged by shortlisted lenders. Go with the lender offering the lowest rate.
- Processing fees: Many loan providers charge a one-time processing fee on disbursal of the loan. Opt for a lender with minimal processing fees.
- Prepayment and foreclosure charges: Evaluate if the financial institution charges any penalty for closing the loan before the tenure. Loan providers with minimal or no prepayment/foreclosure charges are preferable.
- Safety of gold: Check where the lender stores your gold after collateralising. Go with a loan provider that stores gold in safe lockers and vaults. This ensures your asset's safety.
- Transparency: Select a loan provider that clearly specifies all applicable charges, terms and conditions upfront in writing. This avoids surprises later.
- Customer reviews: Before making your decision, check online reviews and feedback from existing customers of the financial institution. This will give you insight into their services.
Tip 2: Provide Maximum Gold as Collateral
One of the most important gold loan application tips is to understand how the collateral works. Financial institutions provide loans up to 75% of the market value of gold you pledge. The more gold you offer as collateral, the more funds you can raise at lower interest rates.
Here are some tips to maximise the gold and securing the best gold loan:
- Use idle gold jewellery lying in lockers for years to get a bigger loan amount. The more gold you pledge, the better the terms.
- You can club gold ornaments of your family members or relatives to increase collateral. Many financial institutions allow joint loan applications.
- You can borrow against gold coins as well. Financial institutions accept gold coins of certified purity levels.
- Avoid pledging heavily studded jewellery, as lenders evaluate only the gold value.
Tip 3: Maintain an Ideal LTV Ratio
The Loan-to-Value (LTV) ratio is the ratio of loan amount to collateral value. It represents the share of gold's value you wish to borrow.
Maintaining a high LTV ratio of 75% allows you to maximise the loan amount against your gold. It results in better utilisation of your assets. However, very high LTV ratios also imply a higher risk for the loan provider. Hence, negotiating gold loan rates is important to strike the optimal LTV ratio.
Tip 4: Build Long-Term Relationship with Lender
Maintain a good repayment track record and long-term relationship with your financial institution. This establishes you as a credible borrower and rewards you in many ways:
- Lenders may offer special lower rates to loyal customers with good repayment history.
- As a regular customer, you may be eligible for higher LTV ratios, resulting in bigger loan amounts.
- Long-term customers may get the flexibility to extend loan tenure if required.
- Financial institutions may process loans faster for existing borrowers.
Tip 5: Monitor Gold Loan Interest Rates
Check prevailing gold loan interest rates periodically, even after availing a loan. Nowadays, some financial institutions have started to offer lower rates to new customers as special offers.
If you find the rates in the market have dipped considerably compared to your current rate, explore transferring your loan to another loan provider. Evaluate applicable charges and transfer costs before transferring the loan.
Tip 6: Avoid Topping up Loan Unless Essential
Some financial institutions allow you to borrow additional amounts as top-ups on existing gold loans using the same collateral. Avoid frequently topping up your loan, as it indicates risky repayment behaviour, and loan providers may deny further top-ups. Do this only in case of emergencies.
Tip 7: Choose the Ideal Loan Tenure
Longer loan tenures, like more than 12 months, allow you to reduce your Equated Monthly Instalment (EMI) burden but also increase total interest outgo because of the compounding effect. At the same time, extremely short tenures can strain finances with very high EMIs.
Discuss with your loan provider and choose the ideal tenure based on repayment capacity, cash flow stability, and the purpose of borrowing.
Tip 8: Make Timely Repayments
Irresponsible repayments and loan defaults can lead financial institutions to take possession of your gold collateral. This can result in the auctioning of your gold if you do not repay within the stipulated time.
Therefore, it is critical to pay your EMIs on time. To avoid missing payments, set up auto-debit for EMI payments from your accounts.
Conclusion
Gold loans allow you to unlock the value of your idle gold and get access to funds to meet various needs. You can secure a low-interest gold loan by choosing the right lender, pledging maximum gold, maintaining a good credit record, and making timely repayments. This ensures affordable borrowing costs and optimal utilisation of your assets.
FAQs
1. What should I avoid to prevent high interest rates on my gold loan?
Avoid defaulting on repayments or delaying payments as it can negatively impact your credit score leading to higher interest rates. Also, avoid frequently topping up your loan or opting for very high LTV ratios as financial institutions may perceive it as risky and charge higher rates.
2. What’s the minimum loan tenure required for a low-interest gold loan?
Most loan providers offer competitive rates even for short 3-6 months tenures. However, longer tenures may provide better rates as the risk is spread over longer periods. Opt for the tenure you are comfortable with based on your repayment capacity.
3. How do I know if a gold loan offer is genuine and reliable?
Only opt for gold loans from reputed banks, NBFCs and dedicated gold loan companies. Check for certifications, read customer reviews, and look for transparency in all fees and charges mentioned. Avoid unverified online lenders offering very low rates.
4. How can I find the best gold loan offers for my specific needs?
Evaluate your specific requirement - loan amount, tenure, repayment capacity etc. Then compare interest rates, fees and charges of various financial institutions online to find the one most suited to your needs.
5. Are online gold loans cheaper in terms of interest rates?
Not necessarily. Many traditional lenders also offer online applications and disbursals. Compare rates across loan providers irrespective of online/offline channels to find the cheapest option.
6. Can my repayment history lower my gold loan interest rate?
Yes, financial institutions may offer lower rates to existing customers with excellent repayment track records through loyalty benefits. Timely repayments can improve your credit score as well.
7. Does gold loan interest change based on economic conditions?
Yes, interest rates on gold loans are linked to benchmark rates, which fluctuate based on RBI policies, inflation, market liquidity, etc. Opt for fixed-rate loans to lock in prevailing low rates.