By K Srinivas

Gold has always held a special place in the hearts and homes of Indians, serving as both a symbol of wealth and a financial safety net. In times of need, many turn to gold loans, a quick and convenient way to access funds by leveraging the value of gold wherein one pledges their gold ornaments as collateral to the lender. In return, they receive a loan amount based on a percentage of the gold’s market value. This percentage is known as the Loan-to-Value (LTV) ratio, and according to the Reserve Bank of India (RBI), lenders can offer up to 75% of the value of gold as a loan.

However, as is the case with other kinds of personal loans that one can avail of, it is important that one understands all the nuances and finer aspects of Gold Loans and the precautions to be taken while pledging your valuable asset for raising funds.

Gold Loans are also amongst the easiest loans that one can get because lenders do not necessarily depend on credit scores while making the lending decision. However, the borrower needs to bear in mind that any default in repayment will get reported and affect an individual’s Credit Score.

While it is relatively easier to get a Gold Loan, anyone who is looking to borrow money should take the effort of an in-depth research on the interest rates for other loan options, interest rates by all lenders offering Gold Loans, the reputation of the lender, various charges being levied by the lender, repayment options, pre-payment options, foreclosure charges, time taken for the pledged assets to be returned by the lender after the loan is fully repaid, etc.

While planning to take a gold loan, one should bear in mind that a number of lenders have started offering loans where interest is being charged for the number of days that the loan is availed for. In most cases, the minimum tenure is of 7 days which means if you take the loan for 7 days, the interest will be charged for just those 7 days.

It is critical that one gets their gold assets valued by a Bank or approved Valuer before pledging it for a loan. A proper valuation ensures that the amount one is eligible for is appropriately calculated and one does not get short-changed on it.

Some lenders might charge an additional fee for insurance coverage, so it’s important to factor this into the overall loan cost. However, the peace of mind that comes with knowing that the gold is protected is often worth the additional expense.

The Bigger Financial Picture

Finally, it’s essential to view a gold loan within the context of one’s broader financial plan. Borrowing against gold should be a well-considered decision, not just a quick fix for immediate financial needs. Think about how the loan fits into the overall financial goals and ensure that a clear repayment plan is in place. Remember, defaulting on a gold loan could result in the loss of one’s precious gold.

Conclusion

Gold loans can be a powerful financial tool, but they come with responsibilities. It is imperative to remember to balance the benefits with the need for protection, and always prioritize the security of one’s valuable assets.

In a world of uncertainties, safeguarding one’s gold with insurance is not just a smart choice—it’s the responsible one.

(Disclaimer: K Srinivas is the Joint Managing Director of Shriram Finance. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)