6 Important Things you Need to Know Before Taking a Gold Loan
What is a gold loan?
Many money borrowers take a gold loan to get immediate funds. You can get a gold loan if you give your gold jewellery as collateral to the lender. You can make a gold loan enquiry from your nearest bank or non-banking finance company or NBFC. The amount you get when you pledge your gold for a loan is 75% of the value of the pledged gold articles. Interest rates of gold loans are more affordable as compared to that of other kinds of loans. Indians generally prefer to take a gold loan in case of a medical emergency, children’s education or a wedding in the family. When you pledge your gold for a loan, it is inspected by the lender based on the purity and weight of the gold.
Why do most people buy gold and not silver or platinum?
The ability to get a loan by pledging your gold articles makes it the most popular choice of metal for jewellery. Gold is the most preferred form of jewellery to silver and platinum. This is because gold is available in a variety of options, while platinum is only available in the form of jewellery and also has low resale value. In the case of silver, it does not have a high return on investment. It is more valued as an industrial material than a precious ornamental metal.
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Things you need to know before getting a gold loan:
- Procedure to get a gold loan: It varies from one lender to another. You pledge your gold articles which can be your jewellery or gold coins. Then you get the loan amount in lieu of that pledged collateral that is your gold. You can go to a bank or a non-banking financial institution with the required documents. The lender will first perform some purity checks on your gold. This is done to determine its weight and then evaluate its market value. Gold loans can be sanctioned up to 75% of the calculated value of the pledged gold.
- Online loan application: These days, you can apply for a gold loan online through a bank, NBFC’s mobile application, or their official website. But after you apply for a gold loan online, to avail of the facility, you will still have to visit the lender once to deposit the gold articles.
- Documents required: Minimal documentation is required to get a gold loan. You do not need to provide your credit score to get your loan approved. You can submit any of these documents for the loan:
- Driving license
- Voter ID card
- Aadhar card
- PAN card
- Advantages of getting a gold loan as a secured loan: Gold loan is considered a secured loan. These loans are either business or personal loans in which the lenders require collateral for borrowing. The benefit of getting a secured loan is that you do not have to maintain your credit scores. In the case of unsecured loans, you must have a sufficient credit score to get a loan. Another benefit is that the borrowers can get a lower rate of interest. This is because it presents a lower risk to the lenders as they can seize a borrower’s collateral if that person fails to make payments.
- Where to get a gold loan: Loan disbursal is faster if you get it from an NBFC rather than a bank. An NBFC only needs your KYC documents, making the process less cumbersome. Only when you take a loan from a non-banking financing company can you pay the amount rate of interest during the gold loan tenure and that of the principal loan at the end of the tenure. Also, many NBFCs do not charge a prepayment penalty.
- Repayment of the loan: Depending on the lender, your repayment schedule can vary. Some lenders let you pay only the interest amount each month and the principal amount at the end of the loan tenure. You can also choose to repay your loan amount through Equated Monthly Instalments or EMIs, but they will include both the principal amount and the interest component of your loan. For instance, if your gold is worth 3 Lakhs, the loan amount sanctioned to you would be INR 2, 25,000. Since most lenders offer a gold loan with a value of up to 75% of the pledged gold’s market value in current times.
Make sure that whenever you need to get a gold loan, you must choose a reputed bank or NBFC. This is because local jewellers are not much reliable, and you may incur losses if you do not take the right decision.