Over the last years, a loan against gold or gold loan has witnessed a quantum leap in the number of applications in India. This significant growth is further fuelled by the COVID-19 pandemic. The low-interest-rate environment is predominantly the reason behind its widespread popularity among Indians.
Unlike the unsecured credit options, such as personal loans, the interest rate levied on a gold loan is significantly lower. Nevertheless, applicants must keep in mind some vital factors while purchasing gold ornaments to avail a gold loan without any hassle.
What Are Some Mistakes to Avoid before Purchasing Gold
The following are the mistakes to avoid before purchasing gold jewellery:
● Not verifying the ornament’s weight
● Not checking its purity
● Purchasing from a random jewellery store
● Buying at higher prices
● Not checking if the jeweller offers buyback
● Not looking for BIS hallmark
Let’s take a look at them in detail:
When purchasing gold ornaments, one must consider that several factors determine their prices. Furthermore, one should confirm that the purchased gold is of standard quality with the requisite markings, affirming the same.
Keeping these in mind will help individuals obtain a higher loan value when they pledge their gold. Besides, it will help one fetch a higher resale value in case of a cash crunch.
Some common mistakes one should avoid while purchasing gold are as follows:
● Not verifying the ornament’s weight
Gold jewellery in India is sold by weight. If precious gems and stones are embedded, they further add to the weight. When purchasing such gold jewellery, customers often forget to estimate the weight separately. And, one ends up paying more than the actual since most jewellers weigh a piece in entirety.
● Not checking its purity
22 Karat or 91.6% of gold is the standard purity rating of gold ornaments. 24K is the purity rating of pure gold (99.9%); however, this isn’t suitable for manufacturing jewellery. Since every karat of gold is equivalent to 4.2% pure gold, 18 karats and 14 karats gold only contain 75% and 58.33% pure gold, respectively.
Since 24 karats cannot be used for jewellery manufacturing, jewellers use 14 karats, 18 karats, or 22 karat gold.
Gold jewellery purchased from any credible jeweller in India will have the 22K marking, BIS marking, and fineness number engraved on it. Such markings assure the best value per gram on a jewellery loan. Availing a gold loan with 22 karat gold is very easy. Hence, purchasing gold jewellery without checking its purity is an absolute no. Checking the purity rating of gold and the BIS hallmark is crucial when buying jewellery or using them as collateral for availing a hassle-free gold loan. These ratings are thoroughly checked before any financer approves the credit.
● Purchasing from a random jewellery store
Considering that there are numerous jewellery stores, choosing the right one can be tricky for individuals. Reputed jewellers will put their hallmark logo or abbreviation on the gold ornament for easy identification. Furthermore, renowned jewellers will not jeopardise their reputation in the market by selling or passing off impure gold as pure. This is often the case with small sellers. Customers planning to purchase gold jewellery must look out for the reputation of the jeweller for utmost safety.
● Buying at higher prices
Another must-check factor is the manufacturing procedure of gold ornaments to be purchased. It is common in today’s age to come across jewellers producing machine-made ornaments. Making charges on such ornaments are comparatively lower than man-made ones. When speaking of making charges, it’s worth mentioning that since these charges reflect the current gold rates, one is often fleeced into paying higher charges. Therefore, one must insist on fixed making charges to ensure cheaper purchases.
● Not checking if the jeweller offers buyback
It is equally important to ensure that the jeweller offers buyback facilities. Despite the BIS marking and fineness numbering, when an individual chooses a different lender to sell gold ornaments, there are more deductions always. Let’s say individuals can exchange their old gold jewellery for a new one from the same jeweller. In that case, the deductions are marginal, and thus, individuals can get the maximum value for their exchanged items.
Furthermore, purchasing gold during peak seasons isn’t a smart move. The selling price of gold during occasions always increases, making the purchase expensive. Therefore, customers should always plan to buy gold during off-seasons when the price is on the lower side.
● Not looking for BIS hallmark
The BIS is the only authorized GOI agency for testing and quality sealing (BIS Hallmark). Customers collateralizing gold ornaments with BIS hallmarking will help them fetch a higher value per gram on a gold loan. Besides, opting for gold ornament with the BIS hallmark will easily facilitate gold loans at lower interest rates without much hassle.
What Are the Factors That Affect Your Gold Loan Application?
The gold loan rate per gram depends on the quality and purity of gold ornaments. Since a loan against gold is a secured credit facility, the lender auctions the gold in case a borrower fails to repay the loan amount. So, the gold loan per gram rate is higher when the gold pledged is of standard purity and BIS hallmarked.
Likewise, if the gold ornament lacks standard purity and quality, the gold loan per gram rate goes down significantly. Gold loan rate per gram is directly proportional to the karat rating and quality of the gold to be pledged. Many a time, trustworthy financers do not approve loans against gold ornaments that lack purity.
Let’s look at the various factors affecting gold loan applications in detail.
● Purity of gold ornament
As already mentioned, the purity of gold plays a crucial role in determining the gold loan rate per gram. Hence, knowing the per gram rate of gold is important. The higher the purity, the higher will be the gold loan per gram rate.
● Weight of the gold item
Since gold is sold by weight in India, heavier pieces cost more. When precious stones are added to gold ornaments, the weight of the jewellery increases. Hence, when purchasing gold, ensure to weigh them separately. By pledging gold ornaments of the highest purity, i.e., 22 karats, one can avail maximum funds to deal with financial emergencies.
● Gold price
With the right gold ornaments collateralised, customers can secure a considerable gold loan amount easily and promptly. Besides, lenders approve a maximum of 75% of the pledged gold’s market value per the RBI guidelines. For instance, if you are pledging gold ornaments worth Rs. 6 lakh, the sanctioned loan amount you will receive will not exceed Rs. 4.5 lakh. Besides, the granted LTV ratio will also depend on the loan tenure, the form of gold, and a borrower’s repayment capacity.
Therefore, it is crucial to understand the existing interest rates and per gram rates.
What Mistakes Should You Avoid before Availing a Gold Loan?
Here are some other common mistakes that customers should avoid when availing a gold loan:
● Opting for the wrong repayment mode
Choosing the wrong repayment mode can significantly impact your disposable income. In case borrowers fail to pay EMIs on time, they will be liable for hefty penalty charges. Though lenders only levy monthly interest, failing to make timely repayments may lead to higher interest rates. One must opt for a repayment amount after considering the affordability and requirements. Leading companies offer flexible repayment modes, which enable borrowers to repay the loan amount conveniently.
● Choosing an incorrect tenure
Usually, gold loan tenure ranges from three months to three years. Opting for a longer tenure only increases the total interest outgo. On the other hand, applying for a gold loan for short tenure may increase the monthly payment amount, but the overall cost of borrowing is in check. Hence, individuals seeking gold loans must thoroughly assess their financial requirements and capabilities before choosing the loan tenure.
● Being unaware of the interest rate calculation
To avoid unpleasant surprises, individuals should have clarity on the terms and conditions of a gold loan before applying for a loan from a lender. Gold loan providers may update your interest rates to the next slab, for example, when repayment schedules are missed.
● Not examining the lender’s credibility
Opting for credible lenders is a must when opting for a gold loan. Make sure to check the selected lender’s website since trustworthy financial institutions will have their own websites for maximum transparency.
Moreover, leading companies like Rupeek offer low-interest gold loans starting at 0.49% per month. Besides, it provides flexible repayment options, wherein borrowers can make a payment anytime during the loan tenure with zero penalty or interest charges.
What Are the Benefits of Opting for a Gold Loan from Rupeek?
The benefits of availing a gold loan from Rupeek are as follows:
● Flexible mode of repayment
● Compact repayment tenure
● No prepayment or foreclosure charges
● Competitive interest rates
● Credit line facility
● Doorstep service
● Hassle-free experience
Besides, you can rope in the tax benefits of gold loans with ease!
Let’s give an insight for better understanding!
With Rupeek, borrowers can take advantage of a one-time bullet payment facility. Moreover, customers can avail a 6-month repayment window, which can be extended up to twelve months, making repayments easy and affordable. One added benefit of availing jewellery loans from Rupeek is that there are no added charges on part or prepayments.
Click on Rupeek Blog to read up on more such details.
Besides offering gold loan schemes at market-best interest rates, Rupeek ensures the complete safety of the pledged gold with ISO 9011:2015 certified gold handling procedures. The pledged gold ornaments are stored in high-tech vaults under 24X7 surveillance. Furthermore, Rupeek offers 100% insurance coverage on the pledged asset in case of theft or any damage.
Rupeek aims to provide a hassle-free and convenient gold loan borrowing experience for all borrowers. Borrowers can download the Rupeek app to place an instant loan request from the comfort of their homes.
