Gold loan is a popular form of secured loan that involves using one’s gold ornaments or jewelry as collateral to obtain a loan from a financial institution. It is a quick & hassle-free way of obtaining funds as the loan approval process is usually speedy & requires minimal documentation. Moreover, gold loan interest rates are typically lower than other forms of unsecured loans making it an attractive option for those in need of urgent funds. With the rising price of gold. gold loan has become a popular choice among individuals looking to meet their financial needs. In this article, we will discuss the benefits & drawbacks of gold loan as well as the process of availing a gold loan and the factors to consider before taking one.
Gold Loan and How it’s Works
India is among the top users of gold worldwide. According to the World Gold Council (WGC), the demand for gold in India between 1987 and 2016 increased by 804 per cent. This trend doesn’t appear to be going away anytime shortly. In addition to being used for commercial, industrial and investment needs, the precious metal can be used to secure loans in the event of a financial crisis. The gold loan is among the most efficient and speediest methods of accessing money when it is needed most.
Even when you have a bad credit score yet have plenty of unutilized gold in your vault, a gold loan could be the perfect solution to your financial needs. With the rising popularity of loans for gold every year, it’s essential to understand not just the definition of a gold loan but how it functions about interest rates, the gold loan, and other relevant details.
What exactly is a gold loan?
A gold loan, sometimes called a gold loan, is a loan secured by the borrower gets from a lender to pay for jewellery or gold jewellery. The amount of loan given on your behalf by lenders is generally an amount that is a percentage of gold’s worth. It is repayable in each month’s instalment, and then receive your gold items returned. In contrast to other secured loans, like home loans and car loans aren’t limitations on the usage of loans made with gold. If you’re looking to pay for the cost of a wedding, a family vacation, or even your child’s education, this is the perfect solution to meet your immediate cash needs. Additionally, many local and private banks and NBFCs can offer gold loans with reasonable interest rates.
How do gold loans work?
The whole process of obtaining a gold loan is similar to secured loans. When you apply for this loan, you send your gold pieces and the required documents to a lender. The lender reviews the gold and verifies the authenticity of the documents submitted. Based on the evaluation results, the lender grants any loan amounts. By the loan agreement, you must pay back the principal amount and the interest and receive the pledged gold items returned.
Who is eligible for gold-based loans?
Anyone with gold can obtain a gold-based loan. In contrast to personal loans with strict eligibility requirements, Gold loans can be accessed by anyone who is an Indian resident, which could include business people, salaried professionals or homemakers as well as farmers. It is not necessary to have a high credit score to qualify for an unsecured gold loan. Even if you cannot get a rating on your credit report, you can obtain the money you need if the gold you own is sufficient for it.
Which is the interest which lenders offer the gold loan?
A gold-backed loan is a secured loan; consequently, its interest rates are low compared to loans with no collateral, such as personal loans. The rates of interest charged on gold loans differ between different lenders and are based on various variables, such as the length of the loan and loan amount. Does it also depend on where you’re taking the loan – a banking institution or NBFC? Banks typically charge lower gold loan interest rates than NBFCs. If you’re contemplating applying for a gold loan, don’t choose the first deal you receive. Examine the gold loan offers of at least two or three lending institutions before you decide on the best one.
What is the term for a gold loan?
The time frame for prepayment or the gold loan term differs between lending institutions, one after another. It typically can vary from 3 to 12 months. Based on the situation, specific lenders may offer an extended time or permit you to renew the loan to extend the duration. Because the term of a gold loan is less when compared to other types of loans, be sure you pay back the loan promptly. Failure to pay back your gold could cause the loss of your precious items forever.
How do lenders decide the amount of gold they lend?
Before approving the loan request, lenders assess the purity and weight. In light of this, the value of the gold is determined by analyzing its current value, which aids in determining the final amount to be approved by lenders. Many lenders will grant a gold loan worth as high as 75 per cent of the gold they pledge. For example, if your gold’s value is 2,5 lakhs, then the amount you can get is not more than 1.5 lakhs. In addition to the Loan to Value ratio, the loan amount is contingent on other factors, including tenure as well as the capacity of the borrower to pay.
The method of repaying the gold loan depends on the lender you choose. Most lending institutions allow you to pay the interest every month and the principal after the expiration of your loan duration. You may also opt to pay for your gold loan using the EMI (Equated monthly instalments) that will cover both the interest and principal component of the loan.