A secured loan known as a “gold loan” or “loan against gold” is one that is backed by gold jewellery or other ornaments as collateral. In general, lenders will sanction a loan payment that is a specified percentage of the gold’s worth.
Once you successfully repay Payment through a monthly instalment by the due date using an app, your gold items will be restored. Gold loans do not place restrictions on how the money is spent, in contrast to other secured loans like home loans and auto loans. Therefore, you have a variety of reasons to take a loan to cover your unforeseen financial demands, such as to pay for a wedding, a family trip, or your child’s schooling. In addition, a number of nationalised and private banks and NBFCs provide gold loans at relatively low-interest rates.
Working process of gold loan
The application process for a gold loan is very similar to that of other secured loans. It entails bringing your gold jewellery and the required loan documentation to a lender. In the course of the appraisal procedure, the lender verifies the submitted documents and assesses the gold items. The lender chooses the loan amount based on the evaluations. You will be able to receive your pledged gold items back once you have paid off the loan’s principal and interest, as stated in the loan agreement.
Eligibility to apply for a gold loan
A gold loan may be requested by any person who has gold. Any resident of India, including businesspeople, salaried professionals, domestic workers, and farmers, is eligible to apply for a gold loan. You can even be approved for a gold loan without having a high credit score. The benefit is that if you have enough gold to guarantee the funding, you still have a chance to obtain funds despite having a bad credit score.
Things you need to know before taking out a gold loan
Tenure of gold loans
A short-term loan is referred to as a “gold loan.” Financial institutions often give one-year gold loans, while some may extend them to 24 months.
Verify the lender’s background
Gold loans are offered by NBFCs, banks, and jewellery stores at various interest rates. Banks are regarded as trustworthy providers, but when working with the other two types of lenders, a comprehensive credit check is essential. Even lower interest rates are provided by jewellers than by banks. Before obtaining a loan from a jeweller, you must, however, be certain of their reliability.
The interest rates for personal loans and gold are not the same. However, there is a wide range of gold loan interest rates accessible at various banks, NBFCs, and other local lenders. It is significant to note that, depending on the type of lender, interest rates on gold loans can range from 9 to 20%.
Never will a loan be granted based on a value of 100% gold. The range of available gold loans is between 60 and 90 per cent of the gold’s worth. Anyhow, a lot of this depends on the lending organisation and its guidelines for gold loans. There are two approaches to figuring out the loan amount that has been given. First, the price of gold is averaged over the previous two weeks or for that specific day.
Lenders assess the purity and weight of the gold pledged in the document before approving the loan application. The market worth of the gold is determined by its current rate, which also influences the overall sum that the lenders sanction. Typically, the value of the gold loans provided by lenders is up to 75% of the gold’s market value. The loan amount is influenced by a number of additional variables, including the loan-to-value ratio and the borrower’s duration and repayment capacity.
Gold loans are undoubtedly not the most profitable alternative, but they have lower interest rates and less- paperwork than personal loans. To choose a gold loan, you must be certain that you can pay back the principal and interest of the loan within the allotted time period.