India basically is one of the largest gold consumers in the globe. According to the WGC or World Gold Council, the yearly gold demand in our country from 1987 to present has enhanced by nearly 804 per cent. The trend does not appear to die in the near future. The precious gold metal other than being utilised in commercial, industrial and investment purposes even can be used to avail loan from top lenders like Muthoot Finance, State Bank of India, IIFL gold loan, Bank of India, etc. at the time of instant financial need. Note that being a secured loan option, gold loan’s rate of interest is lower than unsecured credit options. For instance, IIFL gold loan interest rate begins from 9.96 per cent per annum while IIFL personal loan interest rate begins from 13.50 per cent per annum. Also, a gold loan is one of the fastest and simplest ways to access funds when you require immediate funding or want to meet your personal needs the most.
Even if you hold a poor credit score, you can still get an approval for a gold loan. With the rising popularity of gold loans in the market, it is crucial for you to know not just what a gold loan is but even how it functions and other crucial details linked with it. Read on to understand all such details.
What’s a gold loan?
Gold loan is even addressed by the term loan against gold and is a secured credit option that you as a borrower can take up from a lender in exchange for gold jewelleries. The loan proceeds approved to you by the financial institution is usually a specific percent of the gold’s entire value. You can make repayment of the same via monthly instalment after which the gold article that you pledged will be returned back to you. Unlike various other secured credit options like auto loan or home loan, there are zero restrictions on the end usage of the proceeds availed on gold loan. So, whether you want the proceeds to finance a wedding, a trip abroad, or to meet your ward’s higher education needs, it is an excellent medium to mitigate your instant requirement for money. Additionally, there are many nationalised and private banks in India alongside NBFCs that offer gold loan options at an affordable rate of interest.
Also Check: IIFL Gold Loan Interest Rate
How does the gold loan option function?
The whole procedure of a gold loan is very similar to the other secured credit option. Here, you take your gold to the lender along with the documents asked. The lender assesses your article that you want to pledge, authenticates the document you are submitting. According to the assessment, the lender approves the loan proceeds. According to the loan agreement, you must repay the principal constituent alongside the interest constituent and get back the pledged gold jewellery.
Who qualifies for the gold loan deal?
Anyone with gold can simply qualify for the gold loan deal. Unlike unsecured loans like personal loan, which involve strict eligibility parameters, gold loan may be taken up by anyone, who is a salaried, home maker, businessmen, etc. You are not even required to hold a strong score to qualify for the gold loan deal. So, in case you hold a low score, you still hold the chance to avail funds, provided you hold enough gold articles that you must pledge as collateral.
What’s the gold loan interest rate provided by lenders?
Gold loan by nature is a secured credit option and thus, its rate of interest is lower than unsecured loan option like personal loan. The rate of interest charged on a gold loan differs from one financial institution to another and is based on distinct parameters like the gold loan repayment tenure, loan proceeds, etc. It even depends on from whom you are availing the gold loan i.e., NBFC or bank. Banks generally levy a lower gold loan rate of interest than NBFCs. Thus, if you are looking to place an application for a gold loan, avoid accepting the very first offer that you may get. Ensure to compare among distinct gold loan deals from at least 5 to 6 lenders and then make your decision.
What’s a gold loan repayment tenure?
The repayment period of a gold loan differs from one lender to another. It generally ranges anywhere between three and twelve months. Based on this case, few lenders also provide a higher repayment tenure or permit you to timely renew the same to extend the repayment tenure. As the gold loan repayment tenure is shorter than other loan types, ensure you make repayment of the loan amount timely. Defaulting on the gold may make you lose out on your gold jewelleries forever. This is because if you default on your gold loan repayment, then your gold loan lender may put up your gold loan jewellery auction to make up for the loan capital that you did not pay.
How do the lenders decide your gold loan proceeds?
Before approving your gold loan application, lenders assess the pledged gold’s weight and purity. Depending on this, the market value of gold is decided depending on the present ongoing rate, which further assists in achieving the final loan amount that may be given to you by the lender. Many lenders provide on gold loans a value of just up to 75 percent of the gold’s market value. For example, if the worth of your pledged gold equals Rs 2 lakh, the loan proceeds approved to you will not be over Rs 1.50 lakh. Apart from LTV ratio or loan to value ratio, loan proceeds even depend on distinct other parameters like your repayment capacity and tenure.
How can your gold loan get repaid?
How can you make repayment of your gold loan is based on the lender you opt for. Most of the lenders allow you to pay just the interest constituent every month and principal constituent towards the end of the repayment tenure. Also, you can select to pay your loan via the regular EMI or equated monthly instalment option, which may involve both the interest component and principal constituent of your gold loan.