Gold loans have become one of the most popular ways for people to meet their urgent financial needs in India. With gold prices constantly rising, gold loans allow you to unlock the value of idle gold lying around in your house. Financial institutions provide attractive loan-to-value ratios, making gold loans an easy way to get funds in your hands quickly.
However, like any other loan, gold loans must be repaid within the stipulated period. Most banks and NBFCs provide a maximum tenure of 12 months for a gold loan. This means the principal and interest must be fully repaid within 12 months from the loan's disbursed date. Read on to learn about the gold loan renewal process and much more.
What is a Gold Loan Renewal?
A gold loan renewal refers to extending the tenure of the existing gold loan to another specified period. For example, if you had initially taken a gold loan for 12 months, a renewal would allow you to extend the loan tenure usually by another 6-12 months. Banks and NBFCs allow borrowers to renew gold loans so that customers can extend the loan without losing their gold assets.
Renewing saves the borrower from immediate repayment pressure and allows them more time to arrange funds to repay the loan. These renewal options save the borrower from immediate repayment pressure and provide more time to arrange funds to repay the loan comfortably.
Why Should You Renew Your Gold Loan?
Here are some key reasons why a gold loan renewal makes sense:
- Avoid liquidation: Renewing the gold loan tenure prevents the lender from liquidating the gold to recover its dues. Gold liquidated by the lender to recover its loan amount will attract certain deductions and wastages.
- Pay lower interest: Renewal of gold loans offers the opportunity to negotiate the interest rate, especially if the market rates have declined. This allows borrowers to reduce their interest burden.
- Buy more time: Renewal gives borrowers more time to accumulate funds to repay the loan and get their gold back. Salaried individuals can use this extra time to plan finances and avoid default.
What is the Process for Renewing a Gold Loan?
Renewing a gold loan is quite simple and quick. Though the exact steps may vary with each loan provider, here are the key steps involved:
- Check loan renewal eligibility: The first step is to check your loan account and see if you are eligible for renewal based on the financial institution's terms and conditions. Make sure there are no overdue or pending payments.
- Contact loan providers: Get in touch with your loan provider at least 7-10 days before the loan maturity date. Inform them about your intent to renew the gold loan for another tenure.
- Submit renewal documents: The loan provider will inform you about any documents required for renewal. These are generally minimal and could include KYC documents, proof of income, and a request letter.
- Get renewal approval: The loan provider will evaluate your request based on their renewal policy and eligibility criteria before approving the renewal.
- Pay interest & renewal charges: You must pay overdue interest, principal interest for the renewal tenure and any renewal fees or charges applicable.
- Sign renewed agreement: The loan provider will prepare a revised loan agreement with the renewed closure date. You must sign this agreement for the renewal to take effect.
What Factors Determine Gold Loan Renewal Eligibility?
A loan provider considers the following key factors to determine eligibility for gold loan renewal:
- Loan-to-Value Ratio: Your outstanding loan amount should be within the approved LTV ratio based on the current gold valuation. Loan providers will revalue pledged gold before considering renewal.
- Repayment track record: Your repayment track record is analysed by the lender. Renewals are avoided in case of payment delays or defaults during the loan tenure.
- Quality of pledged gold: When valued again during renewal, the pledged gold ornaments should meet the quality standards applicable to that loan provider.
- KYC compliance: All your KYC documents and information should be updated in the loan provider's records before they consider a gold loan renewal.
- Eligibility criteria: You should meet the loan provider's overall eligibility criteria linked to age, residency, income, credit score, etc., applicable for that loan product.
- Lender renewal policy: Every loan provider has its own renewal policy regarding how many times or for what maximum period they allow renewal for a gold loan. You should check the renewal policy, too.
Conclusion
Renewing a gold loan can help you retain your pledged gold ornaments and also reduce the repayment burden due to lower applicable interest rates. However, avoid multiple renewals and evaluate key factors like alternate borrowing options, gold price outlook, income stability, etc. Manage your finances prudently so that renewal is not abused as an easy way to postpone repayment. Assess your cash flows and ability to repay before committing to a renewal.
FAQs
1. What is the lowest interest rate of a gold loan?
The lowest interest rate for a gold loan can differ across various financial institutions. It typically depends on factors such as the lender's policies, the loan amount, the purity of the gold, and the repayment tenure.
2. Which is the best gold loan scheme?
The best gold loan scheme depends on various factors such as the loan amount required, the interest rate, the repayment tenure, and the specific terms offered by the financial institution. Different loan providers offer varying benefits, so it’s essential to compare options based on your financial needs.
For instance, Shriram Finance offers up to 75% of the pledged gold's value as a loan, providing a higher loan-to-value ratio. They also offer competitive interest rates starting at 10% p.a. However, it's always recommended to evaluate multiple schemes to find the one that best suits your financial situation and goals.
3. How can I reduce my gold loan interest?
To reduce the interest cost on your gold loan, you can opt for a loan with a lower interest rate, higher loan-to-value ratio, and shorter tenure, make timely repayments and prepayments, and reduce outstanding principal.
4. What do I need to do to renew my gold loan?
To renew a gold loan, you typically need to visit the financial institutions branch before the loan reaches its maturity date. At that point, the lender may ask for the payment of any outstanding interest and will guide you through the required formalities for the renewal process. It is advisable to check with your financial institution directly for specific procedures and required documentation, as these may vary between institutions.
5. Is there any processing fee for renewing my gold loan?
When renewing an existing gold loan, the terms regarding fees can vary depending on the lending institution. Some institutions may not charge additional processing fees for loan renewal, while others might have specific policies in place. It's advisable to check with your financial institution for details on any applicable fees or charges at the time of renewal. Typically, renewal involves settling the interest due on the loan, but confirming the exact terms with the loan provider will provide clarity on any other potential costs.
