Gold loans have been one of the most suitable ways to obtain finance in India. Most of the households in the nation possess the yellow metal, which is an important asset. However, letting the gold lie idle at the time when you need monetary fund the most is letting that precious metal’s value remain unrecognized. You can always apply for a gold loan and keep the jewellery as collateral with the lending institute and get funds in an instant. This yellow metal jewellery is not just an accessory or decorative piece, but something you can utilize during a financial emergency. No, you do not have to sell off the ornaments, but rather you can take funds against these.
The popularity of gold loans emerged with inception of NBFCs and banks realizing the prospect of gold jewellery as a means to sanction funds against, and allowing this hidden asset in the homes of India, to become a way to provide ample cash, in the hour of need. A loan against gold has the benefit of quick approval and disbursal. You can get the amount in as less as 45 minutes and the same day. Just complete the documentation, get the gold ornament to the bank/NBFC for valuation, and have the money transferred to your bank account immediately.
What Are the Benefits of Taking a Loan against Gold?
Below given are advantages of a gold loan.
- The jewellery can come to your rescue if you require a small loan or a huge loan, because you can borrow between Rs. 50 thousand and Rs. 50 lakhs.
- The interest rate is also lower than many unsecured loans, thus you save a lot on repayments compared to the collateral-free loans.
- Another advantage is that anyone can apply for loan against gold, be it someone who is a salaried individual, homemaker, unemployed, businessperson etc.
What Are the Important Factors of Gold Loans?
With your gold ornaments you can achieve all your dreams, as through a gold loan, you can cover any financial expenses. The gold against which loan is sanctioned receives free security at the lending institution.
- Gold Valuation: You must be aware that the gold valuation is done keeping in mind the purity and weight of the metal alone, and no other precious gems or material in the ornament, are considered for valuation. The jewellery must be owned by you, and the same needs to be kept as security with the financial institution.
- Repayment Recovery: Once you repay the loan, the ornaments are returned. In case you falter at repaying the loan, the gold ornaments are not returned, but used by the lending institute to cover the loan cost. Never default at repayment, since you would be at heavy loss. It is important to note that finance on gold jewellery is up to 75% of the precious metal’s value, and not 100%. Thus not only you would lose the gold, but also lose 25% additionally of the metal’s value.
- Other Charges: Though the bank and NBFC may not demand income documents or check your credit score, make sure you do not delay repayment, as there is late payment charge involved.
What Should You Choose – Bank or NBFC for a Loan against Gold?
Earlier it was the NBFCs that had ventured the market of gold loan, and soon banks too started offering the product. The non-banking financial companies used to offer higher loan amount than banks, but after the RBI’s notification, any financial can offer only up to 75% of the gold’s value. As banks’ cost of funds is lower than NBCSs, they can lend at a lower interest rate. But, NBFCs are known to disburse the loan against gold, faster than banks.
The amount of documentation is also lesser at an NBFC. They may not charge prepayment penalty, but banks may charge such, as a certain percentage calculated on the outstanding loan. Thus, the choice of NBFC or a bank for loan against gold depends on your requirements and circumstances.
Things to Keep in Mind When Looking for a Gold Loan
Below given are things to consider when looking for a loan against gold.
- Loan Amount: As the lender retains a margin amount, you cannot receive the entire value of gold. Every financial institution may have a maximum and minimum limit for the loan amount. You can understand the valuation methodology applied by the lender to determine the amount you can avail as gold loan. NBFCs usually give out greater product variation and better loan amount than traditional banks, but rates may be higher as well.
- Purpose of the Loan and Its Tenure: Loan against gold is generally a short-term loan, which is usually up to 2 years or 3 years. The lowest tenure is usually 6 months. If you borrow, make sure you can repay the amount within the term, as stated in the loan agreement, or the gold will be auctioned by the lender. Thus, it is not advisable to go for a gold loan for risky and speculative purposes.
- Repayment Terms: Some lenders allow payment of the principal amount when the tenure ends, while others require repayment in form of regular EMIs. Thus, the repayment structure may differ depending on the lender, and you should enquire about these details before choosing the financial institution.
- Rate of Interest and Charges: It is best to compare offers by banks and NBFCs for interest rates and other charges. There could be additional charges and fee applied, such as that for loan processing, gold valuation, late payment etc. Note all these charges and interest rate before finalizing a deal.
Thus, we come to an understanding that gold jewellery are most than just status symbol or an idle asset, but a way to secure finances when you require it the most. By considering the above-mentioned factors, you can apply for a loan against gold with any bank or NBFC.