Gold loan is emerging as a popular way of getting quick credit. Indians traditionally hold Gold as a savings instrument. Now it is also increasingly being used as a credit instrument. If you are looking for a Gold loan then you should avoid these mistakes.
Chosing High Interest rate schemes to get high LTV
Gold loan amount depends on the per gram rate of Gold prevalent in the market. RBI allows for LTV (Loan to Value ratio) of a maximum of 75%. Gold lending companies offer schemes with varying LTV. Often lending companies provide highest LTV scheme at significantly higher interest rates. Beware, of this aspect. To avoid burden of interest later on, always chose the schemes which provide your higher LTV at lower interest rate.For example, Rupeek's schemes offer highest LTV at low interest rates.
Not Knowing the Interest Rate Calculation
Companies often market their schemes to show optically low interest rates. Subject to terms and conditions your might end up paying a significant higher interest. Some companies charge Jumping interest rate, where your interest jumps with passage of time or on missing your monthly interest payment. Thus as much as possible choose schemes which offer Fixed or Constant interest rates. In all cases check how your interest will be actually calculated.
Choosing Wrong Repayment Mode
Banks offer EMIs as a repayment method whereas NBFCs charge monthly interest. In case of missing your EMI, you will be liable to pay hefty penalty charges. NBFCs though only demand monthly interest, a failure to make this payment monthly might lead to higher interest rate. This is called Jumping interest rates. Choose a payment method which suits your cash flow requirements. Companies like Rupeek Gold loan offer flexible repayment option where a customer can pay at any time during the tenure of loan without any penalty or change in interest rates.
Not Knowing the Hidden Charges
Companies often hide a lot of charges in their Terms and Conditions. Common charges include processing fee, appraisal fee, foreclosure charges, penal charges on late payment, and auction related charges. Always factor in additional charges in your calculation to know the true financial cost of your loan. These hidden charges might come as a surprise and can be burdensome. You may try Rupeek which offer transparent schemes with no hidden charges.
Selecting the wrong tenure
Tenure means your loan duration. Tenure vary from 3 months to 3 years. Chose a tenure which suits you the best. Longer tenure is not always better. Check how interest calculation is linked with your tenure. In case of jumping interest rate, you might be paying higher interest with long tenure. Ultra short tenure like 3 months can lead to auction very soon. Optimal tenure is from 6 months to 1 year. Thus choose wisely as per your cash flow visibility and repayment capacity.
Being unaware of Auction terms
If you are unable to repay your loan on time, your gold will be up for auction. Your lending company will be entitled to auction (sell) the Gold in the market and recover the debt. Make it a point to discuss the auction terms clearly. You should be entitled to a prior intimation and formal notice before auction. Also check the penal charges associated with auction. In case if you are unable to repay your loan on time, choose either to renew the loan or apply for a takeover with some other company. This will help save your Gold from auction.
Not considering after sales service
After sales service is the most neglected feature. During the time of applying for a loan if the staff behavior is unsatisfactory, then just image the after effect. Don’t ignore such signs. You should always consider companies with track record of customer friendly service. It will save you a lot of hassles and allow for mental peace.
As a customer be aware. Always take an informed decision. Don’t be swayed by marketing gimmicks and always ask the correct questions. Remember you are entitled to do so.