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Planning To Take A Gold Loan In Covid-19? 5 key Things To keep In Mind



COVID’19 pandemic has led the world to a significant economic breakdown. Small business owners are running out of cash to continue their business, and salaried people are losing their jobs that create a demand for finances to meet their current financial requirements. Secured loans are the best choice to overcome the financial needs at this time. And if you own gold, it is the most valuable asset that can be provided as collateral in the COVID’19 pandemic. This is because gold prices are rising daily, and you will get the highest finance for the gold that you give to the NBFCs as collateral.


Before opting for the option of a loan against gold during this pandemic, you need to know the following aspects of the gold loan so that you can research the gold loan market accordingly and get the best deals from those available in the market:

1. The loan-to-value (LTV) ratio of gold loan

LTV ratio indicates the loan amount that you can avail against the asset’s valuation to the NBFCs as collateral. NBFCs today provide an LTV ratio of 75% under gold loans. This means that if you have gold worth Rs. 1,00,000, you can get a loan of Rs.75,000 against this asset. You can further estimate the LTV ratio through gold loan calculators available online on the lenders’ websites.

2. The purity of gold is an essential aspect of gold loans:

Besides the LTV ratio decided by the NBFCs, the loan amount is also determined by gold purity. Remember that the gold you own must have a purity value of 18 Karat or higher than that. The lower the purity of your gold, the lower will be the loan amount. Further, note that the valuation of the gems and stones in the gold jewelry is not considered during gold loans. You can avail loans against gold coins, bars, and billions if they weigh less than 50 grams.

3. Gold loan tenure:

Gold loans are short-term collateral/secured loans. Hence, the repayment tenure varies from 7 days to 36 months. It would help if you made a repayment plan accordingly. Remember that the higher the term, the higher the interest rates. You can calculate your EMI against different tenures using the gold loan calculators. So, analyze your needs and repayment capacity well before selecting the repayment tenure. If you are unable to pay the loan according to the commitments, there are chances that you might lose your precious gold asset.

Discuss the foreclosure charges for your gold loan with the lender before applying for the loan. Mostly, lenders do not charge fees if you want to pre-pay the loan amount. However, some of the lenders may charge a pre-payment fee of 2.25% if you wish to foreclose your gold loan.

4. Gold loan disbursal time:

Gold loans have lesser documentation, and the loan amount is disbursed within a few hours of the loan application. Thus, in this COVID’19 pandemic, if you are in requirement of emergency finances, you can think of a gold loan as one option for meeting your needs.

5. Interest rates and other associated charges:

The interest rates of gold loans are low as compared to the personal loans available in the market which you can calculate using gold loan interest calculator. They range from 9%-29% per annum. The interest rates change according to the repayment tenure, loan amount, etc. Go to the lenders’ website and calculate your gold loan’s interest rate using the gold loan calculators.

Gold loan lenders also ask for a processing fee that accounts for about 1% of your gold valuation. But every lender has their own rules regarding these charges. Hence, proper research about the interest rates and processing fees is essential before finalizing the lender for availing a gold loan.

Do not opt for the gold loan schemes that offer lucrative interest rates. Look into the lender’s terms and conditions as there might be some hidden charges in such cases.


Final words

Thus, keep the points mentioned above in mind before going for a loan against gold in the current pandemic situation. If you can repay the loan in short-term, gold loans are one of the cheapest and best options for you to get instant finances in this period of recession.

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