Written by:
Utkarsh Bhagri
Medical issues are unpredictable and can strike without warning, often leaving individuals and families grappling with unexpected financial burdens. In times of health crises, the need for immediate funds becomes paramount to access quality medical care and meet related expenses. Traditional avenues like personal loans may involve complex processes and prolonged approval times, exacerbating the urgency of the situation.
This is where the significance of gold loans comes into play. Gold, a valuable asset possessed by many, serves as a reliable collateral for obtaining quick financial assistance. In times of medical emergencies, individuals can leverage their gold assets to secure loans swiftly, facilitating prompt access to essential healthcare services. Gold loans are known for their simplicity, agility, and minimal documentation requirements, making them a viable solution for those in urgent need.
Things To Keep In Mind Before Availing A Gold Loan During Medical Emergencies
1. Benefits of Gold Loans
- Gold loans offer immediate capital, with funds approved and disbursed after approval into the borrower's bank account.
- Gold loans have lower interest rates compared to personal loans, making them a more affordable option.
- Gold loans offer added liquidity, as they provide easy liquidity based on an asset otherwise dormant in the bank.
- Gold loans offer flexible repayment options, such as Equated Monthly Instalments (EMIs), which can be tailored to your needs.
- Gold loans have low pre-payment charges, making them a viable option for early repayment.
- Gold loans offer the security of physical gold, which is kept in secured vaults and protected with an insurance policy against theft or damage.
2. Interest Rates
- Gold loan interest rates in India vary depending on the lender, loan amount, and loan tenure.
- Generally, gold loan interest rates are lower than those for personal loans, making them a more affordable option.
- The interest rate on a gold loan can range from 8.45% to 22% per annum, depending on the lender and loan scheme.
- The Central Bank of India ranks top in Forbes Advisor India’s list of best gold loans in January 2023, for its lowest lending rate against gold to Indian households at an interest rate of 8.45% for loans.
- Gold loans do not require a credit check, making them accessible to a wider range of applicants.
- To get the best possible deal, compare interest rates, repayment options, and other charges offered by multiple lenders.
3. Purity of Gold
- The purity of gold is a crucial factor in determining its value for a gold loan. Gold is measured in karats, with 24 karats representing pure gold.
- However, gold jewelry and ornaments are rarely made of pure gold. Most lenders offer gold loans only on 22-karat gold jewelry.
- The purity level is assessed by analyzing the gold's composition and comparing it to the standard purity levels.
4. Repayment Options
- Gold loans offer various repayment options, providing flexibility to borrowers. Some of the common repayment options include:
In this method, the borrower pays the interest throughout the loan tenure and repays the principal amount at the end of the tenure, allowing them to take possession of the gold pledged at once.
Borrowers can opt for a regular EMI-based repayment plan, where the EMI amount includes repayment of both the interest and the principal amount. This option is suitable for individuals with a fixed income.
Borrowers can choose to pay only the interest as EMIs and repay the principal amount at the end of the loan tenure.
Borrowers have the flexibility to make partial payments of the interest and the principal amount as and when they desire, allowing them to adjust their repayment schedule to match their financial capabilities.
This option allows borrowers to make interest payments according to a flexible repayment schedule while repaying the principal amount partially.
The tenure of a gold loan is flexible, allowing borrowers to repay the loan at the end of the tenure, which can range from 6 to 12 months, as per their convenience
5. Lender Selection
- Opt for a lender with a swift disbursal process and straightforward documentation to ensure prompt access to the funds you require.
- Compare the interest rates provided by different lenders to secure the most favorable deal. Seek a lender that presents competitive rates and clear terms and conditions.
- Pick a lender offering flexible repayment options, such as bullet repayment, regular EMIs, interest-only EMIs, partial payments, flexible interest payments, or repayment at the end of the loan tenure.
- Choose a lender committed to transparency and avoiding sudden interest rate increases.
- Select a lender with robust customer support to efficiently address queries and facilitate smooth settlement of dues.
6. Credit Score
- Obtaining a gold loan does not significantly influence your credit score, as these loans are secured by precious jewelry, eliminating the need for a credit check during the approval process. This aspect makes gold loans accessible to individuals with varying credit histories. However, the subsequent repayment of the gold loan plays a crucial role in credit score dynamics.
- Timely and consistent payments on the gold loan can positively contribute to your creditworthiness.
- Lenders often view a history of responsible repayment as a positive indicator, potentially leading to an improvement in your credit score over time.
- Conversely, failure to adhere to the agreed-upon repayment terms can have adverse effects.
- . Defaulting on a gold loan can result in a drop in your credit score and tarnish your credit history.
- It's essential to recognize that while the initial approval for a gold loan may not heavily rely on your credit history, responsible repayment behavior is pivotal in maintaining and enhancing your creditworthiness.
7. Income Proof and documentation:
- Unlike many other loans, gold loans are secured against the pledged gold's value, eliminating the need for borrowers to provide income or salary proof during the application process.
- This distinctive feature enhances accessibility, enabling even individuals without a regular income or those currently unemployed to avail themselves of a gold loan by leveraging their gold assets as collateral.
- Instead of scrutinizing income details, lenders primarily focus on assessing the purity and value of the gold being pledged.
- Basic KYC (Know Your Customer) documents such as proof of identity and address, along with a copy of the PAN card, form the core documentation required for a gold loan application.
- This streamlined approach to documentation, free from the complexities associated with income verification, makes the gold loan application process notably simpler and faster compared to other types of loans.
8. Tenure Flexibility
- The duration of repayment is determined by several factors, including the loan amount, the borrower's creditworthiness, the policies of the lending institution, and the prevailing market conditions.
9. Pre-Payment Charges:
- Gold loans in India are an attractive option for early repayment due to their low pre-payment charges.
- While some lenders do not impose any pre-payment fees, others may charge a modest amount, typically around 1% of the remaining loan balance. For instance, HDFC Bank applies a 1% pre-payment fee on the outstanding loan amount, ensuring that borrowers can settle their loans early with reasonable charges.
- Similarly, Bajaj Finserv adopts a fee structure with a processing fee of 0.12% of the loan amount, including applicable taxes. The minimum fee is Rs. 99 (inclusive of taxes), and the maximum is Rs. 600 (inclusive of taxes).
- These nominal pre-payment charges offer borrowers the flexibility to repay their gold loans ahead of schedule without incurring exorbitant fees.
- This feature proves beneficial when borrowers have the means to access funds or negotiate more favorable interest rates elsewhere.
- However, it's crucial for individuals to compare pre-payment charges and other associated fees across different lenders to identify the most favorable terms for their specific financial situation.
10. Customer support:
- Customer support for gold loan providers typically includes assistance with the loan application process, addressing customer queries and concerns, providing information about loan products, and facilitating smooth loan disbursement and repayment processes.
- This support can be offered through various channels such as phone helplines, online chat support, email, and in-person assistance at branch locations.
- It is important to choose a gold loan provider that offers responsive and helpful customer support to ensure a positive borrowing experience.
In times of need, support means everything, and with Milaap, you need not look any further. Milaap enables you to set up a fundraiser for any medical emergency within minutes, and you can easily raise funds for treatment expenses.
Do you know someone who could benefit from fundraising? Simply refer them to us and we’ll be happy to lend a hand.
Visit www.milaap.org or call us on +91 9916174848 to get started now.
For more information, write to us at cx@milaap.org.
