Demand for gold loans has been growing following the outbreak of coronavirus as people face a cash crunch brought on by the loss of employment, salary cuts or a downturn in business due to restrictions.
If you can repay quickly, then gold loans are the best option but there are other things that you should keep in mind apart from interest rates.
According to data from Paisabazaar.com, lenders that offer low interest rates include Punjab & Sind Bank (7-7.5 percent), State Bank of India (7.5 percent) and Canara Bank (7.65 percent).
Bandhan Bank charges up to 18 percent, Muthoot Finance up to 27 percent and Manappuram Finance up to 29 percent. The interest rate can be as high as 29 percent with some lenders.
The total interest that you will pay will come to Rs 4,109. The equated monthly instalment will be Rs 8,676 if you are taking a Rs 1 lakh loan at 7.5 percent for a year.
If the interest rate is 18 percent, the EMI will be Rs 9,168 and the total interest outgo will be Rs 10,016. At a 29 percent interest rate, you will end up paying Rs 14,053 in interest for the same loan.
Punjab & Sind Bank, Canara Bank, Punjab National Bank, IIFL Finance and Manappuram Finance offer tenures for a year or less, so, before taking a loan, check the maximum tenure that the lender is willing to offer you.
State Bank of India, Bandhan Bank and Muthoot Finance offer a maximum tenure of up to three years. Kotak Mahindra Bank can give a loan for up to four years.
Some lenders charge a processing fee as a percentage of the loan amount. Punjab National Bank, for example, charges 0.75 percent, which will be Rs 750 for a Rs 1 lakh loan.
Lenders could sell the gold to recover their money if you are unable to repay on time. Lenders could also ask you to pledge more gold if prices fall.
Due to a fall in gold prices recently, many lenders issued notices to borrowers to pledge more gold. Gold could be auctioned if they fail to do so, lenders said.