4 Important Things to Consider When Applying For a Gold Loan

The nationwide lockdown induced by the COVID-19 pandemic has significantly impacted the country's economy and has caused financial instability for many people and businesses. To cope with this uncertain situation, some people have no choice but to dip into their savings, sell their valuables or take loans to meet financial liabilities.
Gold Loan: A relief measure

For years now, loans have come to the rescue of those faced with financial distress, and of course, there are different loans that you can opt for depending on your need. One type of loan that is quickly becoming the preferred choice is the goal loan. A lot of its popularity stems from the fact that it has a lower rate of interest compared to a personal loan. 
Getting a Gold Loan is simple; anyone who has idle gold - in the form of jewelry can pledge their gold to get financial assistance. A Gold Loan is a practical way to secure funding without liquidating your long-term investments. And with the gold prices at an all-time high, you can get good value for this investment.  

Another benefit of a Gold Loan is the minimum paperwork that it requires. With the right KYC documents, you can secure a Gold Loan in no time. HDFC Bank, for instance, sanctions Gold Loans in less than 45 minutes.
However, there are a few things to keep in mind while applying for the loan:

1) Valuation of gold determines the loan amount
The loan amount that is eventually sanctioned will depend upon the value of the gold. This means the higher the purity of the gold, the higher will be the valuation and loan amount. To be eligible for a loan, the purity of the gold pledged must be 18 to 24k. If you pledge gold jewelry that contains precious or semi-precious stones, or other metals, these elements will be deducted for evaluation. The loan amount you receive will be considered only against the actual gold in the asset.

2) Ensure it is a credible lender 
Since you will be pledging your precious gold as collateral, make sure the lender is reliable. Avoid getting a loan from jewelers or small shops, as they could be unregulated and may command unfavourable terms and conditions. There is also the possibility of them being frauds. It is best to opt for a certified financial institution that you can trust. For instance, HDFC Bank has earned the label of being India's most trusted bank, and you can be sure that your gold will be safe with a reputable institution like this.

3) Picking between banks and NBFCs
When it comes to selecting a credible lender, there are broadly two options from which you can choose. You can take the gold loan either from a bank or an NBFC (Non-Banking Financial Company). 
NBFCs could be more liberal when it comes to evaluating your gold, and the process is simple and hassle-free. But the interest rates offered by NBFCs tend to be higher than those provided by banks. Some banks, however, like HDFC Bank, not only offer Gold Loans at lower interest rates but also ensure a minimal and straightforward documentation process and transparent charges. 

4) Look at the repayment options
Another important factor is the repayment option, and there are a few options that you could consider:
Bullet payment: Here, the loan repayment amount is calculated as per usual standards monthly, but you pay the entire sum, including the interest at the time of maturity of your loan period. This is a recommended option if cash flows are low initially, but you are confident that things will pick up and coincide with the end of your loan tenure.

Upfront Interest: Here, you can pay the entire interest at the beginning of tenure and principal at the end.
Regular EMI: You have the option of paying back the loan on a month-on-month basis along with interest. This is ideal for salaried individuals who are sure of receiving payments every month.

Overdraft facility: Here, an overdraft facility is given against gold to borrowers. The borrower will have to pay interest only on the utilised amount. Such an option is ideal for self-employed and salaried individuals. 

HDFC Bank Gold Loans include all four repayment options, allowing you flexibility and ease of repaying loans. A Gold Loan can enable you to tide over unexpected financial setbacks, but it is vital to approach a lender that is governed by the RBI, such as HDFC Bank.  Apply for Gold Loan today and fulfil your financial needs on your own like business needs, unexpected expenses, or bill payments.

The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.