Gold loans in India are given to customers after estimating the quantity and quality of gold in the things pledged.
Gold loans cater to a variety of needs. It acts as a quality security option and it guarantees faster than the loan disbursement.
Gold loans can be a resourceful instrument to help the individual to face a credit need be it in case of medical emergencies or paying for education.
Gold loans can also be taken by business entities to sign up for an overdraft facility against their gold assets to serve their working capital requirements.
The gold loan can be useful financial assistance taken by an individual or a business entity for their financial needs.
Eligibility for getting a gold loan
Unlike other loans be it secured or unsecured, a gold loan can be taken by any individual of age between 21 years and 70 years.
Gold pledged is the only security to be provided to the lenders while taking on the loan.
Factors to consider before getting a Gold Loan
Before taking a gold loan, check out whether the loan you apply for has the following qualities:
Low processing time
As gold loans have physical gold as a guarantee, banks and other lending institutions easily grant such loans.
For banks, lending against gold is a more reliable option since they can easily trade the gold in case the borrower defaults on their payment. Therefore, banks tend to distribute such loans within a matter of a few hours.
This issues in a lesser processing time and therefore it acts as an added convenience for borrowers.
Low-interest rates compared to other loans
As the gold loans are secured loans, banks can charge a lower interest rate compared with an unsecured loan such as personal loans.
The interest rates for gold loans vary from 13 to 14%. However, personal loan interest rates generally range around 15%.
The gold loan interest rates are further reduced by the bank for borrowers who can provide additional collateral.
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Is there a ‘Pay Interest Only’ option available
Gold loans often come with a different 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 loan tenure or during the closing rules of the loan.
There won’t be any processing fees
In the case of personal loans, any collateral will not be provided to banks. The lending companies then examine the loan applicant’s income proof documents.
Thus, they end up charging simple processing fees for personal loans. Generally, the processing fees for personal loans range from 0.5% to 1% of the loan amount.
When applying for a gold loan, borrowers do not need to present income proof documents because they offer their gold assets as collateral. This leaves out the expense of processing fees.
Repledging can be done
There is no limit on the number of times you can pledge a particular piece of jewelry or gold coins or bars. It helps customers take loans repeatedly on the same asset.
This feature is only available to gold loans when compared to personal loans, where loans are disbursed based on the customer’s capability to repay the loan amount.
Also, with personal loans, a repeat loan from the same banking entity completely depends on the customer’s ability to repay at that point.
Chance of flexible repayments
The advantage of a gold loan is the flexibility to repay the loan principal and interest as a lump sum amount instead of the popular way to pay other forms of loans – equated monthly installments, or EMIs.
This feature benefits small-business owners and traders, who face the temporary need for cash situations, to take gold loans as opposed to other loan options where monthly EMIs could burden borrowers from immediately the next month of the loan approval.
No need to furnish an income proof
In most gold loan applications, banks don’t ask for income proof from borrowers as the loan is secured against the gold guaranteed by the borrower.
Is not impacted by your credit history
In most loans, the financial institutions grant loan amounts depending on the repayment capability and credit history of the borrower.
However, this is not the case with gold loans. Since gold is used as collateral, lenders are assured about repayment of the principal component and therefore don’t rely on the credit history of the borrower before granting the loan.
Your gold is secured
The ability to safely maintain the physical gold is that of the bank. It is usually kept safe in the bank’s vault and therefore, borrowers don’t have to worry about the safety of the gold. Once they repay the loan, the gold is returned to the borrower.
How to get a gold loan in India?
To get a gold loan in India, you only need to possess gold. Unlike other loans, there is not much documentation or eligibility required to take a gold loan.
Firstly, check all the options available for you. Enquire about the terms of different banks before you choose a lender.
The aspects to consider here are the interest rate, loan tenure, and also the value of the gold.
Ensure that the gold pledged will be kept safe till the time you clear the loan and wish to take back your gold.
You can choose to take up a gold loan either through online or offline modes. If you want to take it offline, you need to visit the lender along with the gold you wish to pledge and the required documents.
After verification of the documents and the purity checks of the gold, the value of the loan to be provided is evaluated.