The practice of putting up gold as collateral for quick and easy access to funds has always been around. Gold loans were availed by Indians from relatives, friends, and local jewellers. Over time, financial institutions came into the mix and things improved.
Now that the organised framework of banks and NBFCs are in play, these lenders offer gold loans at competitive interest rates. As such, lending money became a lot more transparent and borrowing became easier thanks to digitisation and personalisation.
In fact, it is now possible to get a gold loan and do so cost-effectively. Here are the six ways you can avail of affordable gold loans and save money.
6 Ways that Help You Save Money on Your Gold Loan
If you are in immediate need of funds, a gold loan may be the right option for you. As the gold prices are rising, you can get a higher loan against the gold that you pledge as collateral.
However, when availing of a gold loan, borrowing a higher amount in the backdrop of increased gold prices is not the only factor you need to consider. In fact, you can employ the following six approaches to save money on your gold loan.
Compare Different Lenders and Offers
When there is an instant need for cash due to an emergency, people tend to go with the very first lending option they encounter. However, it is always smarter to compare different lenders and their offers to determine which is the best-suited gold loan for you.
To compare different lenders and their gold loan offers, all you have to do is use a gold loan EMI calculator. The easiest comparison would be the EMI amount payable. To find the EMIs payable against the gold loan, you just need to add the value of these variables:
- The weight of gold and its purity (in carats)
- The interest rate charged by the lender
- The repayment tenure
And then, you will get the EMI amount that you will have to pay against your gold loan. Compare these values and select the offer that provides a gold loan at the minimum EMI.
A gold loan EMI calculator also helps you in planning your budget by granting access to an amortisation schedule. This way you can plan ahead and minimise chances of defaulting on your loan repayments.
Check the Lender’s Authenticity
During and after the pandemic, many fintech businesses have started offering gold loans. However, not all of these follow fair industry practices as laid out by the RBI. That is why it is prudent to check the authenticity of the lender before handing over your gold to them.
To determine their credibility, you can research to check if the lender is an RBI-registered entity. For this, you can visit the RBI website, and check the registered bank and NBFC lists there.
Moreover, you can also rely on customer reviews and ratings while choosing a gold loan lender. Try to avoid falling for shady promotional gimmicks and go with popular lenders to minimise fraud.
Exercise Caution When It Comes to Hidden Charges
Oftentimes, when you begin to repay your gold loan, you may find that the lender is charging you additional costs. These are not any additional costs but hidden charges that you are unaware of.
To avoid paying any hidden fees, you need to read the terms agreement carefully. Go through the fine print of your agreement to figure out if the lender will charge any hidden fees.
If there are no hidden charges, you can end up saving a substantial amount on your gold loan.
Choose the Right Repayment Option
When availing of gold loans, try to pick a lender that allows you to choose from a slew of different repayment options. Having different repayment options allows you to manage your instalments better and save yourself from default and hence paying penalty charges.
With gold loans, many lenders allow you to enjoy the benefits of the following repayment methods:
- Equated Monthly Instalments: You can choose to repay the principal and interest on your gold loan in easy and affordable EMIs at the end of every month
- Paying the Interest: Many lenders allow you to pay off the interest on your gold loan during the tenure and the remaining principal at the end of it
- Bullet Payment: If you do not wish a monthly obligation, you can choose to opt for bullet payment, where you can repay the entire amount at the end of the tenure
- Partial Payment: Many lenders allow you to pay back the principal and the interest through several payment windows as and when you have liquidity in hand
Prepay When You Can
If you have adequate liquidity, it makes complete sense to prepay your gold loan amount and interest before the end of your tenure. With prepayment of your gold loan, you can save on the interest outgo amount.
Note that some banks and NBFCs may charge a small prepayment fee of up to 2% to 5% of the outstanding loan amount. However, the margin between this fee and the interest outgo amount will translate into savings for you.
Moreover, as per the RBI guidelines, on a gold loan on floating charges, you will not be required to pay any prepayment/foreclosure charges.
Transfer Your Gold Loan for Better Terms
If you have an existing gold loan that you have availed without following the first tip, you can choose to transfer it. To avoid paying a higher interest rate, look for a lender offering a gold loan balance transfer facility at more competitive rates.
All you have to do is inform your current lender about it and fill out an application with the new lender for a balance transfer.
The remaining balance of your gold will then be transferred to your new lender, with the existing lender deducting a small portion as a transfer fee. After this, you can continue to pay your loan with the new lender at the revised interest rate.
As the adage goes – money saved is the money earned! So, if you have decided to avail a gold loan, try following the above-mentioned money-saving tips. Moreover, you can invest the money that you save on your gold loan to earn some returns.
