A gold loan allows you to acquire a loan simply and securely from the lender by using gold as security or collateral in exchange for funding. The demand for a gold loan has been rising year after year to mitigate your distinct expenditures. Many households usually prefer using a gold loan to mitigate their expense in health, education, marriage, etc. The gold loan can even be used for distinct businesses, particularly by entrepreneurs to smoothly run their operations.
The gold loan may be acquired for a specific repayment tenure, which must be repaid via distinct repayment plans. The loan amount offered by the lender depends on the percentage of the value of gold. Interest constituents must be paid to lenders, which might differ across lenders. For instance, Muthoot Finance gold loan tends to levy a Muthoot Finance gold loan interest rate that begins from 9 per cent per annum onwards. However, the SBI gold loan may levy an interest rate starting from 8.85 per cent per annum.
How does a gold loan function?
Gold is usually passed from one generation to another, or an individual may purchase gold using his hard-earned funds for investment purposes. Thus, individuals may hold an emotional attachment to their gold jewellery or ornament and hesitate to use them for other purposes. However, idle gold can be utilised to get a gold loan to mitigate your distinct financial exigencies.
Before you apply for a gold loan, gold must ensure first pass through a quality check to ascertain its weight and purity, which determines its worth in the market. You must then provide the necessary documentation to compute your KYC. Following this, the lender as well as the borrower must sign the agreement that might involve info regarding the gold, rate of interest and payment. Once done, the lender will take up the gold and safeguard the same after the process. Gold is given back once you have paid all the monthly instalments along with the interest constituent.
A gold loan may be used by individuals for distinct reasons –
Those who constantly require funds to keep their business work running so can use the gold loan for raising funds to set up an overdraft option. This offers various benefits for those who do not require selling their gold to raise funds. As compared to other credit options, gold allows you to obtain finances at a relatively cheap rate of interest. On the contrary, other typical overdraft options may require extensive documentation.
Also Read: Muthoot Finance Gold Loan Interest Rate
A gold loan is one of the prudent options that can assist you to attain financial independence. This is particularly helpful in the scenario of women entrepreneurs. Generating funds to finance a business is one of the major challenges that many look for. In such scenarios, they can only use the gold to help start a new business as well as grow a prevailing one. You as a consumer can profit in various ways, which involves borrowing funds at a cheaper rate of interest and regaining possession of gold when the loan is repaid.
Alongside such specific circumstances, this even has an economic impact because the funds obtained via a gold loan are further disseminated in the Indian market.
Why must you consider availing a gold loan?
Short-term fund needs – Those requiring funding for three to six months can avail gold loan to mitigate their business or personal needs.
Zero credit score required – As gold itself serves as security or collateral, the lender becomes comfortable in offering a loan and thus, your score is not factored in.
Time – The gold loan process is very simple because you as a borrower must get the gold checked and submit the same along with necessary documentation as well as processes. After such processes and approval, the amount is instantly disbursed.
What are the important advantages of gold loans?
Some of the major gold loan benefits are –
Instant processing
As a gold loan requires you to submit physical gold as security or collateral, financial institutions easily provide this as a loan. For financial institutions, lending against gold is a prudent and safer choice as they can easily sell the gold in the case a borrower defaults. Hence, banks tend to disburse the loan in a matter of some time. This results in lesser processing time and thus added convenience for the borrowers.
Pay only interest constituent option
The gold loan usually comes with features and benefits that are unique allowing you as a borrower to just pay the interest constituent while repaying the loan. The principal constituent can be paid by the end of the loan repayment tenure or during loan closure formalities.
Comparatively lower rate of interest
As the gold loan is secured in nature, banks levy a lower rate of interest than unsecured loans like personal loans. The gold loan interest rate range anywhere between 9 – 26 per cent per annum. In contrast, personal loan rate usually ranges between 12 – 24 per cent per annum. For those who offer additional security, the gold loan rate of interest may be further lowered by the lender.
No processing charges
Many NBFCs and banks do not levy processing charges as a gold loan is offered instantly with gold as security held by the lender.
Minimal foreclosure fees
A few lenders either do not levy or incur minimal prepayment fees of 1 per cent on gold loans.
No need to furnish income proof
In most applications for gold loans, lenders do not ask you to offer income proof from borrowers as the loan is a secured loan against the gold you pledge.
No impact on low credit history
In most loans, lenders grant loan proceeds based on your repayment potential and credit history. However, this is not the scenario with the gold loan. As gold is used as security, lenders are well-assured regarding the principal constituent repayment and thus do not depend on your credit history before granting the loan.
Security of the physical gold
The responsibility of maintaining the gold safety is of the lenders. It is normally kept safely in the lender’s vault and thus, you do not require worrying about it. Once you make the loan repayment, the gold is given back to you by the lender.
