3 Reasons Not To Invest In Gold Loans

By Author: Neha Sharma
Total Articles: 170
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The value of gold in an Indian family comprises of both an emotional and monetary value. While there are several benefits of gold investment, there are also a lot of drawbacks. In this article we give you the reasons why should you not invest in a gold loan.

1. Hallmarking Of Gold Items

This is one important factor that is taken into consideration when applying for a gold loans. The method of valuation of gold differs from institute to institute. Gold, especially gold jewelry have a certain hall marking which determines the actual gold value of jewelry. The amount of the loan against gold is considered on the basis of the actual gold that is present in the item which is being pledged against the loan. Therefore if there is some costly gemstones that are studded into the jewelry it will not be taken into consideration when the amount of the loan is determined. Therefore there is a chance the loan amount might surpass the actual amount you have spend for that gold item of jewelry.

2. High Interest Rates

Based on the valuation ...
... of the jewelry, the interest rates are taken into account. The value of the loan amount will depend upon the quantity of the purity of the gold which can be equivalent the 60 to 90% of the value. Moreover, the gold loan interest rates are differing from banks to institutes. Most the private institute offers an exceptional loan against gold, but it also includes a high interest rate. This interest rate is also prone to change at a drop of a hat, in the very next month thereby increasing the amount to be repaid. Thus, looking at the period of tenure of payment, you may end up paying more to retrieve the gold jewelry than its actual initial worth in the market.

3. Actual Value of the Gold

The gold loan depends on the actual value of the gold in the market. It is a common belief that gold rates never fall but only rise in the market, however the gold rates are also susceptible to falling in compliance of the changing market trends. Therefore, the loan against gold will most likely not give you the amount of the value you might need. The market value is one concept whereas; the emotional value of the gold also plays an important role. Many owners of the gold jewelry are emotionally attached to jewelry that is passed onto them through special events or through a family heirloom, thus having a higher value to them more than the importance of the market value. If by some unforeseen circumstances, this gold jewelry is confiscated and auctioned off, there is high reluctance to resort to this mode of loan gain.

Author Bio :- Neha Sharma is a finance student that loves to write during her spare time. She has considerable knowledge about gold loans and wishes to share all information about loans against gold to those who are planning to invest in loans