Gold has slipped 28% from its peak; if you are planning to take a gold loan, you must know these things..

Gold prices have seen a significant decline over the past few months, falling by nearly 28% from the record highs seen in late January. When gold prices were at their peak, interest in gold loans surged because borrowers could secure larger loans against their gold holdings compared to earlier periods.

**Growing Reliance on Gold Loans**

According to a new report by Experian, people are increasingly relying on gold loans to meet their financial needs. The share of gold loans within retail loan portfolios rose from 18% in FY23 to 41% in FY26. The report also notes that global gold prices have surged by approximately 130% over the last five years.

**Offers of Higher Loan Amounts Can Lead to Trouble**

Despite the recent drop, gold prices remain significantly higher than they were a few years ago, enabling borrowers to secure larger loans against their gold jewelry. Abhinav Thakur, Senior Vice President at Equifax India, stated, "People are getting higher loan amounts based on the value of their gold, which has boosted confidence in gold loans. However, individuals should avoid availing themselves of offers for excessively high loan amounts against their gold."

**Decisions Should Not Be Based Solely on Loan Offers**

He noted that rising gold prices have led to offers for larger loan amounts; however, it is crucial to determine the loan amount based on actual financial requirements. It is also important to compare offers from various banks and Non-Banking Financial Companies (NBFCs). First-time gold loan borrowers often focus primarily on the maximum loan amount offered by the bank or NBFC.

**Consider Interest Rates and Other Terms**

You should opt for a bank or NBFC that offers a lower interest rate. Vijay Maheshwari, Founder of Stocktic Capital, said, "Banks typically offer gold loans at interest rates ranging from approximately 8% to 11%, while NBFCs charge between 9% and 18%. In addition to interest, customers must also pay processing fees, valuation charges, renewal fees, and penalties for delayed payments." Therefore, instead of focusing solely on the interest rate, customers should consider the Effective Annual Percentage Rate (EAPR).

Choose the Right Loan Repayment Option

Some banks and NBFCs offer the facility of regular EMI-based repayment, while others provide a 'bullet repayment' option, where the principal amount is repaid at the end of the loan tenure. According to new RBI regulations, the maximum tenure for bullet repayment is 12 months. Customers should select a repayment option that suits their financial situation; this helps avoid future complications and eliminates the risk of default.

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