Gold loans have seen a surge in popularity in recent times. With job losses and pay cuts during the pandemic, many Indians have turned to gold loans to meet urgent financial needs. Gold loans allow you to leverage your idle gold jewellery and coins to get access to funds quickly.
However, if you are new to gold loans, making mistakes during the application process is easy. A wrong step can lead to approval delays, lower loan eligibility or even loss of your precious gold! This blog shares the top 7 common loan application errors and guides you on how to apply for a gold loan without mistakes.
Why You Need to Be Extra Careful with Gold Loan Applications
Gold loans offer easy and quick access to funds, making them popular. However, borrowers must still exercise diligence during applications. Sometimes, rushing in blindly can mean lower loan amounts, higher rates, or even a loss of pledged gold. Thorough research on providers, loan amounts, tenure, rates, and potential pitfalls is essential. Being informed helps maximise eligibility and interest savings on these loans against precious gold collateral. Carefulness and vigilance pay you best.
Mistakes to Avoid When Applying for a Gold Loan
Being aware of these common gold loan mistakes to avoid will help you secure your gold loan hassle-free.
Mistake 1: Not Checking Gold Purity
The amount of loan you qualify for depends directly on the purity of the gold pledged. Financial institutions provide gold loans against jewellery of 18K to 24K purity. Any stones, gems or other metal is deducted before valuing the gold. You get a loan only against the actual gold content.
Before visiting the branch, check the hallmark on your jewellery to verify the purity. Carrying outdated inherited jewellery with lower gold purity will reduce your potential loan amount. For maximum eligibility, get a dedicated gold loan against high-purity gold.
Mistake 2: Trusting Providers Without Appropriate Research
The financial institution's trustworthiness is key when pledging your valuables as collateral. There are risks like:
- Loss of gold if financial institution shuts operations
- Delayed retrieval of gold after loan closure
- Hidden charges levied on customers
Avoid roadside agencies and opt for reputed banks or NBFCs like Shriram Finance. Check for:
- Registered business with RBI approval
- Strong security protocols for storing gold
- Transparent pricing and minimum processing fees
- Quick retrieval process for pledged gold
This gives you peace of mind that your asset is secure.
Mistake 3: Not Comparing Banks vs. NBFCs
When choosing between banks and NBFCs for your gold loan, it is important to compare various parameters. One key factor is gold valuation—NBFCs typically provide higher loan amounts against your gold than banks due to more flexible LTV policies.
By reviewing these key parameters - gold valuation, interest rates, processing fees and application process- you can choose between banks and NBFCs for your gold loan needs. Analyse both options before finalising the right gold loan provider with the best value.
Mistake 4: Not Checking Repayment Terms
Check what repayment structures your financial institution offers:
- Bullet repayment: Interest-only payouts during tenure, principal at maturity
- EMI: Fixed monthly payouts covering interest and principal
- Part-prepayments: Option for partial principal payouts during tenure
Choose an option aligned with your cash flows. A mismatch between repayment capacity and repayment structure can risk loan default.
Mistake 5: Not Evaluating Loan Tenure
Gold loans generally allow tenures from 6 months to 2 years. Consider factors like:
- Purpose of loan- Shorter tenure for emergency funds, longer for business needs
- Income stability - Salaried prefer shorter, self-employed longer tenure
- Interest cost - Longer tenure means higher interest outgo
An unrealistic tenure will hamper your repayment discipline. Pick wisely based on requirements and repayment capacity. Shriram Finance has flexible repayment tenure, with 7 days being the minimum loan duration.
Mistake 6: Not Comparing Interest Rates
Interest rates on gold loans generally range from 10% to 29%. Major factors affecting rates are:
- Financial institutions: Banks, NBFCs, fintech, and others
- Loan amount: Lower rates for higher gold loan amount
- Tenure: Short-tenure loans have lower rates
Use online gold loan calculators to estimate and compare total interest outgo across financial institutions. Choose the one offering the lowest gold loan interest rate.
Mistake 7: Falling for Wrong Promises
Some financial institutions make tall claims like:
- “0% interest" gold loans - Interest is charged but hidden in the processing fee.
- Instant gold retrieval - Delays often happen after loan closure.
Read the terms & conditions and avoid such misleading claims. Be realistic about turnaround times and the costs involved. Like Shriram Finance, the right financial institution will be upfront about all applicable charges and timelines.
Conclusion
You can avoid errors by being aware of common mistakes and understanding how to apply for a gold loan without mistakes like purity, financial institution choice, tenure, interest rates, etc. Do your homework, review all options, and pick the financial institution with the best terms.
A gold loan can meet your urgent financing needs. With some wisdom and care in the application process, you can secure your gold loan without hassles. Be informed diligently and maximise this credit option backed by your gold assets.
FAQs
1. How do I check gold purity before applying for a loan?
Look for the BIS hallmark engraved on your jewellery to verify the purity. Get outdated low-purity gold valued independently by a certified valuer.
2. What documents do I need for a gold loan?
Generally, you are required to submit ID proof, PAN card, address proof, and passport-size photos for KYC.
3. Can I foreclose my gold loan anytime?
Yes, you can prepay the loan and get your gold back immediately with minimal or zero foreclosure charges, depending on the policies of the financial institution.
4. What is the maximum LTV offered on gold loans?
The LTV is generally capped at 75%* of your gold’s value. However, it is important to check with your lender for accurate details.
5. How do I get the lowest interest rate on my gold loan?
Use online EMI calculators to compare rates across banks, NBFCs and fintech financial institutions. Choose the financial institution offering the lowest rate for your specific loan amount and tenure.
