Compared to the other loans like a car loan or home loan, there is no restriction on the end-use of the gold loan. You can meet your sudden need for funds with the help of a gold loan. Moreover, many private banks and nationalised banks provide loans with reasonable interest rates. You can compare gold loan interest rate offered to decide from which institution to take the loan. The repayment of the loan amount generally ranges from 1 month to 2 years depending on the lender.
What is a Gold Loan?
The gold loan refers to a secure loan taken by the borrower against gold. The loan amount that is sanctioned by the lender is a specific percentage of the gold’s current market value. Usually, the borrowers pay monthly interest after which they get their gold ornaments back.
There are multiple benefits of availing a gold loan apart from getting access to immediate funds. Here are a few benefits of gold loans.
- A gold loan involves very little documentation
- You get flexible repayment options
- There is no need to worry about employment or credit history when applying for a gold loan as you are not asked to submit your employment details or credit documents.
- You don’t have to share information related to your income.
- You are required to submit only the KYC documents.
- The interest rate on a gold loan is less compared to the interest rates levied on personal loans.
- You don’t have to usually prepay any amount on gold loans but if the lender charges a prepayment amount, it will be only up to 1% of the gold value.
Things to Consider While Applying for a Gold Loan
You might think gold loans are simple to get if you have gold and that is quite right. However, there are certain things to remember while applying for a gold loan.
Gold valuation determines the loan amount
The loan amount that will get sanctioned depends on the valuation of gold. This means that purer the gold, the higher the loan amount will be. The purity of the gold kept as security should be 18 to 24K to be eligible for the gold loan. If the gold jewellery contains other precious stones or metals, these elements will not be considered in the evaluation. The loan amount will be sanctioned only against the actual gold in the asset.
Lender’s credibility matters
Since you are taking a loan against your pledged gold, make sure the lender is reliable. You should avoid getting a loan from jewellers as they may be unregulated and might command unsuitable terms and conditions. You should opt for those banking institutions that are certified and can be trusted completely. Trusting safe and secure institutions will assure that your gold will be safe.
Banks and NBFCs are the best options
When you are selecting a credible lender, you get two options to choose from. You can get a gold loan from either of the two options that are banks and NBFCs. When you apply for a gold loan in NBFCs, the application procedure is easy and hassle-free. They are also liberal while evaluating the gold asset. However, the rate of interest when taking a loan from NBFCs is higher compared to banks. You should even compare gold loan interest rates of different banking institutions as certain banks offer gold loans at a lower rate of interest and have a minimal documentation process compared to others. They even mention the transparent charges on the application.
Compare and choose the most suitable repayment option
Another important thing to consider is the repayment option. You can consider the following options.
Bullet payment
In this type of payment option, the loan repayment amount is calculated based on monthly standards. But you have to pay the loan amount including the interest rate at the time of maturity. If the flow of cash is low initially and you are confident that you can pay the entire sum at the end, bullet payment is a suitable option for you.
Regular EMI
Here, you have an option to pay the EMI on a monthly basis with the interest rate. This option is best for salaried individuals with a regular source of income.
Upfront interest
You can pay the interest at the beginning of the tenure and the principal amount at the end of the maturity of the loan period. This repayment option is only offered by NBFCs.
Gold loan is one of the fastest and easiest loans. Anyone who is 18 years old and above can get a gold loan if the resources are available. Also, knowing the important things to consider while applying for a gold loan will help you make the best decision while getting the required loan amount and ensuring that the gold is safe as well.
