Although the price of the metal seems to be increasing by the hour gone, it holds a great place in the minds of the Indian sentiments, it is considered auspicious to purchase gold on every important occasion. Apart from adorning the yellow metal, it can come handy in time of a credit crunch.
These days banks realize their advantages, and are coming forward to offer loans against gold. Banks usually offer loans against gold ornaments and NBFCs(Non-banking finance companies) offer gold against gold bars or gold coins.
Now let us analyze as to how it can help us in case of a credit crunch.
Opting for a personal loan have a lot of formalities and obstacles to get through. Like lengthy checks and procedures and upon the final approval you are charged high interest rates, which vary from bank to bank and EMIs tension. Whereas Gold loans can be taken easily, without many hassles and carry lesser rates of interest. You can easily avail your yellow metal investment once the principle amount has been repaid.
Another advantage that comes with gold loans are that they can entitle you to avail higher amount of loan amounts than compared to any other secured loan against securities. For example borrowing a loan against a security will grant you only 50% of the value of the security in contrast with the gold loan, which can provide you much more than that. You can get a loan amount of 70-95% of the gold value can be availed. More the value of the gold pledged, higher will be the loan amount.
Gold check
“We cannot use equipment on gold ornaments as one has to cut the jewellery or even liquidate it for checking its purity. Since we have to give the jewellery back to the customer in the same condition, we use traditional techniques to check the gold quality. But usually these skilled workers have an eye for gold. They can do the due diligence by looking at the jewellery,” says Thomas George Muthoot, director, Muthoot Pappachan Group. The ornaments go under the eye of the experts to analyze if the gold is a genuinely yellow metal or not.
Safety measure
You must be wondering if, its safe to park you valuables in NBFCs since we do not know where our ornaments will be stored. “The NBFCs have no stipulations on lockers. But even we maintain the same locker requirements as banks, given the risks associated with the precious yellow metal. It is our bread and butter and we cannot afford to compromise on safety measures,” says Muthoot.
Borrow when necessary
Normally this option is best used only when there is a height of emergency to raise funds for a personal use. Avoid raising loan against gold if you want to repay any other interest payments since you will have two margin amounts to be paid with one single source of income, thereby increasing your credit burden.
So plan well before raising a loan against gold, and plan according to how the expenditure of the loan amount to be carried, so that you can make a judicious use of it. After all you do not want to be facing a heated home environment on the disposal of your wife’s most liked ornaments!