Choosing the Perfect Bank for Your Gold Loan Essentials
Gold is more than just a valuable asset. In an Indian household, the value of gold is measured by the numerous sentiments and memories attached to it. Given a choice, nobody would like to part with such an invaluable possession. However, life may throw an unexpected curveball your way where you may be compelled to pledge your gold in exchange for ready cash.
In such a situation, it is important to choose a lender who understands the sentimental value of your possession and treats it with utmost care and respect. Today, several banks could offer you a loan in exchange for your gold. However, not all of them might be able to offer the correct value for your priceless gold assets. Read on to know various factors to consider before picking a bank for your gold loan.
Essential points to consider before picking a bank for your gold loan
Loan to Value Ratio
The loan-to-value ratio is the most important factor when considering a gold loan. The loan to value ratio is the percentage of the loan amount that the bank is willing to lend against your gold. The higher the loan-to-value ratio, the more money you can borrow against your gold. For example, if a bank has a loan-to-value ratio of 75%, that means you can borrow up to 75% of the value of your gold.
Interest Rate
The interest rate is the percentage of the loan amount you will be charged for borrowing the money. The higher the interest rate, the more money you will have to pay back in interest charges. For example, if you take out a gold loan with an interest rate of 10%, you will have to pay back an extra 10% of the loan amount in interest charges. So choose a bank with the lowest interest on gold loan.
Loan Tenure
The loan tenure is the length of time that you have to repay the loan. The longer the loan tenure, the more time you have to repay the loan. For example, if you take out a gold loan with a loan tenure of 1 year, you will have 1 year to repay the loan.
Processing Fee
The processing fee is a one-time fee charged by the bank for processing your loan application. The processing fee can vary from bank to bank and is usually a percentage of the loan amount. Different banks have different processing fees, while some have none. It is essential to compare the processing fees of different banks before taking out a gold loan.
Prepayment Charges
Prepayment charges are fees the bank charges if you choose to repay your loan before the end of the loan tenure. These charges are usually a percentage of the outstanding loan amount. Different banks have different prepayment charges, so compare the charges of different banks before taking out a gold loan.
Mandatory Insurance
Most banks require you to take out insurance on the gold loan. The insurance is to protect the bank in case you are unable to repay the loan. The insurance premium is usually a percentage of the loan amount and is added to the total loan amount.
Final Word
Choosing the right bank is very important when taking out a gold loan. Make sure to consider all the above-mentioned factors before deciding which bank to take out a loan with. Also, compare the interest rates, processing fees, and prepayment charges of different banks before making a decision.
