At times, the saving of a middle-class family might fall short in meeting the sudden expenses. In such a situation, the gold articles and ornaments can be used to arrange the cash. Gold loans are prefered by both the lenders and borrowers due to several factors. The lender is assured of the repayment, and the borrower gets the loan at a suitable gold loan per gram rate, a lower fee and gold loan interest rates. However, there are a few pitfalls of this facility as well.
The term used to categorize gold loans is secured loans. The security is for the lenders, as they are the one who are providing the funds and are at the risk of loss in case of failure in reimbursement by the borrower. The gold assures the lenders about the repayment or the recovery of funds. However, there are a few risks and cons for the borrowers.
Let's take a look at few of the most common ones -
Credibility of the lender - If the loan is taken by some renowned NBFC or banks, you can be assured about the safety of the gold. However, in case you pledge the gold to a local lender, then there is always the risk of losing the gold, or getting back less pure golds. It is important to verify the lenders background before availing the loan. Gold loan frauds have happened quite a few times and these fraudulent attract the customers through lower interest rates than the established lending institutions.
Lower loan-to-value ratio - The borrower can avail a maximum loan of 75-80% of the current value of the gold. The remaining share is reserved by the lenders to face any market risk such as a sudden drop in the prices of gold. Although it seems like a decent deal, it is still a disadvantage for the borrowers.
Freeze and sell- The lender may provide the gold loan at a low gold loan interest rate but has the right to freeze the gold in case the borrower fails to make the timely repayment of the installments. Also, in case of complete failure, the lenders will sell the gold to clear the loan. And thus, the borrower will never have the gold back.
To get the best schemes, you should go for HDFC gold loans. They offer the loan at much lower interest rates and the process of disbursement of cash is swift and hassle-free. You will also get the assurance of the safety of your gold with such an organisation.
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