Gold loans are granted in lieu of gold jewellery. The ornaments need to be deposited with the lending institute. The jewellery would be returned to you once you repay the loan. In India, gold ornaments are not just assets but have a traditional importance. Gold is considered as gift during weddings, birthdays, anniversaries and important festivals and events. Thus, it is evident that almost every citizen in the country possesses some amount of gold. And what can be more useful than putting the gold to use than having it lie idle in a bank locker?
The concept of pledging gold for funds has been around for many years; however, with entry of lending institutes and banks, the practise has become formalized and transparent. Now financial institutions are aggressively promoting gold loan in India because it has a huge prospect in the lending industry, and this is done by adhering to legal norms, thus customers do not have to worry. Earlier local and unregistered lenders could exploit customers by charging high rates of interest and sometimes not returning the gold jewellery in complete.
The local lenders would change the terms and conditions without informing the borrowers and harass them. But, with leading banks and NBFCs providing loan against gold, today, you can find respite in availing quick funds without having to go through unnecessary ordeal. You can even apply for a gold loan online and fast-pace the process of loan approval and disbursal.
How to Boost Your Chances of Getting a Gold Loan?
There are several ways to increase your chances of gold loan approval:
- Choose gold ornaments and jewellery than coins, bars, biscuits etc. Financial institutions consider mostly jewellery for providing loan, than the latter three options.
- The greater is the content of gold in the jewellery, better loan amount would you secure. The same goes with the purity of gold.
- If you can pay the interest amount on the loan in lump-sum, there is a possibility of securing a discount on the interest rate by maximum 2 percent.
- If you need gold loan but are a male member, you can take the loan on a female’s name. Women customers could be eligible for lower rate of interest. However, the repayment would be done on her credentials. Thus, be sure that the repayment is done as per the loan agreement.
- Though your other loans would not hamper your chances of securing a loan against gold, it is best to have minimal financial liabilities on yourself since you would have to manage the repayment towards this new loan.
- Your credit score does not matter in regards to a loan against gold, but an excellent track record of repayments would still convince the lender to provide you a gold loan, especially if you are looking for a high loan amount.
- It is not mandatory that you should be employed at the time of gold loan application. However, to repay the loan, you will require some income source or finance. Thus, it is for the best that you have some finances arranged to pay off the loan, if not employed and drawing an income.
- Always plan the loan repayment in a way that you are able to pay off the principal amount as well. Otherwise, the gold jewellery you submitted will be confiscated by the bank. It is not a win-win situation since you would be losing at least 25 percent of the gold value, as financial institutions offer a maximum of only 75 percent of the gold value, as loan.
Why People Choose to Take a Gold Loan?
A loan against gold is for short-term credit seekers as compared to personal loans or credit card loans. This loan is a cheaper option to many other secured and unsecured loans. Before opting to borrow funds against your precious jewellery, you must consider some important aspects of gold loans.
Important Things to Know About a Gold Loan
- Financial institutions can offer up to 75 percent of the gold’s value. The valuation is based on the metal’s purity and weight, as per current market price.
- You should check for the interest rate on gold loan, the minimum being 10.50% to 13%. The tenure is up to 2 years, and in some instances it can be up to 3 years.
- Any person can apply for the loan, but he/she has to be at least 18 years of age.
- You have the option to pay only the interest component through the tenure and the principal amount at the end of the tenure.
- For those involved in agriculture, there are gold loan schemes that offer rate of interest as low as 8% to 10%.
- If gold price fluctuates, it will not affect your loan and pledged ornaments in any way. You do not have to make up for the difference in the amount if the gold prices decrease to a level that the loan value becomes higher.
- Paperwork is minimal for a loan against gold. You have to submit only identity proof and address proof.
Loan against Gold: Things to Watch Out For
Be careful regarding the following aspects of a gold loan.
- It is advisable to choose a recognized and legit gold loan provider than local agents, unregistered lenders, and likes. Since a precious asset is involved, you should be careful about choosing a suitable lender.
- Check for fees and charges. There should be no hidden costs and all involved costs should be stated upfront. You can be asked for a processing fee, valuation fee, penalty on non-payment, and other crucial charges that come with loans against gold.
- In case you are unable to repay the loan, the financial institution will sell or invest the deposited fold to recover the due amount, as per the loan agreement’s terms and conditions.
- Also, there will be a penal interest charged in case of late payment or missing/delaying payments towards the gold loan.
By considering the above-mentioned facts and things that can help you boost your chances of getting a gold loan, now you stand a better chance of choosing a reliable lending institute and go about choosing a suitable gold loan scheme.
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