Gold Loan Queries answered::
1.What are the easy and quick options an
individual has to secure funds in case the money requirement is immediate
(better than personal loan and loan against property)? Please rank them in
terms of risk carried, interest rate offered and disbursement process.
If a hierarchy of loans needs to
be built and time to get the loan is the most crucial factor then loan against
jewelry (popularly called gold loans) has to be the number one option. Most
lenders will give you these loans in one working day - as long as you have
proper identity and residence proof - with some of the specialist lenders such
as Mannapuram and Muthoot even giving it in an hour or two. The interest rate
depends on how much margin of safety you leave for the lender (the more jewelry
you pledge for the same loan amount lower will be your interest rate) and will
vary between 10 % and 17 %. The other options
that are reasonably quick ( couple of days) is if you take a
against moveable security such as listed shares, units of mutual funds, bonds, National Savings Certificates, or against surrender value of your life insurance policy. These are also reasonably priced at between 11.5 % to 15% but creation of security may take a little time. In the case of Listed Shares/units/ULIP policies each bank has its own list of approved shares/schemes and if your shares/scheme is not within that then the loan may not be possible.
For traditional (non ulip) policies with LIC the best bet is to take a loan from LIC itself (normally 90% of surrender value) which is available in days at an interest rate of around 8%.
The best thing about all these loans are that you can use securities belonging to third parties (say your parents, siblings, friends, etc.) as long as they become co-borrowers for the loan and these loans will be available irrespective of your credit history.
Gold Loan Queries.
2. Loan against gold has gained immense
popularity in the recent times. What makes it score over other sources of
funding? What is typically the rate of interest on a gold loan?
Gold loans - quick (within a few hours to a maximum of one day), easy local
availability at a local branch near you, available irrespective of credit
history and best of all at reasonable rates of interest especially if the
amount borrowed does not exceed 50-60% of the market value of the jewelry. Also
repayment can be structured as just interest amount with principal being repaid
at the end of the period in one lump sum. Thus regular payments can be smaller
than what an EMI would be for the same period. For example if you took a
interest only loan of Rs. 2 lakhs for 2 years at 12% your monthly payment will
be Rs. 2000/- for 2 years but you will need to repay the loan with a lump sum
payment of Rs. 2 lakhs at the end fo 2 years whereas the EMI for a 2 year loan
at the same interest rate would be around Rs. 9400 (of course the loan is
repaid at the end of 24 installments so there is no lump sum payment at the end
of 24 months).
3. What are the different ways in which a
loan can be secured by pledging gold? Which is the best option among them and
why?
If the need for speed is not paramount (i.e. you can wait for a day or two) you should look at private sector and public sector banks which provide these loans at a more reasonable rates of interest . Also if you can restrict your loan amount to around 50% of the market value of the jewelry than the interest rates are most reasonable. The process is fairly streamlined with the jewelry assessor sitting in the lenders branch itself or available very near the branch where it is valued and then your jewelry is sealed in a pouch in your presence.
Additional Input
4) Typically jewelry is an item of personal use and its emotional value is sometime far higher than its market value. If for any reason you are unable to pay pack the loan the lender can sell your jewelry in the market to recover its dues after which you can never get your jewelry back.
Harsh Roongta is CEO, Apnapaisa.com, a price & features comparison engine for loans, insurance and investments.
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