Here's Why Customers Should Try Availing Gold Loan

Gold is regarded to carry significant value and a source of future capital appreciation for the future. But, not many know that gold can also be used to fund emergency cash necessities like children’s education, medical expenses, and down payment for vehicle purchases, business set-up and even yearly vacations with family.  

When you experience a situation that requires urgent cash, you can use the gold that is lying inactive in the locker of your bank. Several banks and non-banking financial companies (NBFCs) offer gold loans today. These loans can come in handy and can be sourced in a trouble-free manner whenever there is a need for immediate cash. You can get a loan against gold that you may have in any form like jewellery, gold bars, gold coins, etc.

Benefits offered by gold loans.

 

Some of the primary benefits of loans against gold are mentioned below:

• Fast Processing: As gold loans have physical gold as collateral, banks and other lending institutions provide such loans quickly. For banks, lending against gold is a secure option as they can sell the gold quickly if the borrower defaults. Thus, banks tend to pay out such loans within a few hours. This leads to less processing time and, therefore, convenience for borrowers..

• Lower Interest Rate: As gold loans are secured loans, banks charge a reduced rate of interest than unsecured loans like personal loans. The gold loan interest rates 2021 range from 13 to 14%. On the other hand, individual loan interest rates usually range around 15%. The bank further decreases the gold loan interest rates for borrowers who can offer added collateral.

• ‘Pay Interest Only’ Option: Gold loans frequently come with a distinctive feature that enables the borrower to only pay the interest component while repaying the loan. The principal component can be paid at the end of the loan term or during the closure formalities of the loan.

• Negligible Foreclosure Charges: Certain banks and lenders either do not charge or have minor prepayment charges of 1% on gold loans.

• Zero Processing Fees: Several banks and NBFCs and the best gold loan bank do not charge any processing fees as gold loans are offered instantly with gold as collateral held by the bank.

• No Impact of Poor Credit History: In maximum loans, the bank grants loan amounts based on the repayment capability and credit history of the borrower. However, this is not the matter with gold loans. As gold is used as collateral, lenders are assured about repayment of the principal component. Thus, they do not rely on the borrower's credit history prior to granting the loan.

• No-income Proof to be provided: In most gold loan applications, lenders do not ask for income proof from borrowers as the loan is secured against the gold pledged by the borrower.
• Security of Physical Gold: The liability of safely maintaining the physical gold is that of the lender. It is usually kept safe in the bank’s vault, and as a result, borrowers don’t have to be concerned about the same. Once they pay back the loan, the bank returns the gold.

 

How does a gold loan work?

The whole procedure of gold loans is almost the same as secured loans. In this, you take your gold articles to a lender together with the necessary set of documents. The lender assesses the gold articles and confirms the submitted documents. As per the assessments, the lender approves the loan amount. According to the loan agreement, you pay off the principal amount and the interest amount and get the gold jewellery you have submitted back.

 

Who is entitled to apply for a gold loan?

Any person who has gold can avail of a gold loan. Unlike personal loans, which include strict eligibility criteria, gold loans can be availed by any Indian resident, including business people, salaried professionals, housewives, and even farmers. You do not even need to have a good credit score to be eligible for a gold loan. Thus, if you have a low credit score, you still can get funds, provided you have adequate gold to pledge for it.

 

The interest rate on which lenders offer the gold loan

A gold loan is a secured loan; thus, its interest rate is low compared to unsecured loans such as a personal loan. The interest rates imposed on gold loans differ from one lender to another and depend on a variety of factors such as gold loan tenure, loan amount, etc. It also depends on where you are taking the gold loan. Banks usually charge lower gold loan interest rates compared to NBFCs. Thus, if you plan to apply for the gold loan, do not agree to the first offer you get. Compare gold loan offers from no less than a couple of the lending institutions, and then make your selection.

 

Gold loan tenure

The prepayment period or gold loan tenure differs from one lending institution, and it typically ranges from 3 to 12 months. Based on a case, some lenders even offer a longer-term or enable you to renew it to expand the tenure. As the tenure of the gold loan is shorter than other types of loan, ensure you repay the loan amount on time. If you default on a gold loan, it can lead to losing your gold jewellery.

 

In what way do lenders determine the gold loan amount?

Before approving the loan application, lenders assess the gold’s weight and purity. Based on it, the gold’s market value is determined based on its current rate, which further assists in reaching the final gold amount to be sanctioned by lenders. 

The Bottom Line

Gold loans are quick and straightforward, but you must ensure that you pay back the loan, or the gold would have to be submitted. A preferable place to take a gold loan would be a gold loan company instead of a bank, as disbursement could be fast.