Are you planning to avail gold loan? Remember these points or else you will be trapped

Unlike personal or home loan, the gold loan is seen as a secured form of borrowing for both lenders and borrower. There is trust in the eye of lender, as it sanctions a sum of amount to the borrower against gold collateral. Simply put, a borrower can avail loan from banks by giving his or her gold jewelry, coins or bars as security with them. The moment, the borrower finishes repayment of his or her tenure, the bank returns the shining metal on due date. 

One of the key advantages of applying for gold loan, is that they are processed within minutes and are generally kept for short to medium term duration. 

To apply for gold loans, a customer must be above the age 18 years and must own the yellow metal. 

Reason behind why a gold loan is easier, is because the interest rate on these form of loans are cheaper compared to other available options such as personal loan. 

Also, the tenure is very flexible varying from few days to 5 years. Furthermore, a bank or NBFC does not levy any pre-payment charges on gold loans. Documents needed for this form of loan is also very less. 

Although gold loans look very attractive compared to other options, there are a list of factors a customer must remember before applying. 

According to Aditya Kumar Founder and CEO Qbera.com, here are tips to keep in mind while taking a gold loan during the festive season. 

1. The RBI has a guideline mandating that gold loans not exceeding 75% of the value of the metal pawned can be given out. The percentage often differs from lender to lender – so if you want a higher loan amount, there might be lenders offering you a higher percentage.

2. Most lenders don’t charge high processing fees on Gold loans, and the percentage is usually less than 1% of the loan amount. If there are lenders charging a higher processing fee, that is definitely not the popular trend – you can approach a different lender.

3. Gold Loans are flexible – more flexible than unsecured or other forms of secured loans. Depending on the lender’s terms, you can even choose to pay just the interest on a monthly/quarterly basis and pay the principal at the end of the tenure. Also, in the case of gold loans, the disbursal time is super-quick too.

4. Make sure you compare different options available with different lenders. It is also advisable to do some research on the credibility of the lender while also paying close attention to the repayment terms. Being aware of the quality of the gold in your possession is key too.