The country of India is known for its inherited gold jewels. More massive population deals in buying and selling gold. As per the World Gold Council(WGC), the annual demand for gold is increasing. Gold is not only limited to getting a loan. Gold is an essential commodity, and it can be used in other areas such as industrial and commercial. A gold loan is a fast medium to access funds.
India is one of the leading gold consumers in the world. It ranks 10th in holding the world’s largest Gold Reserve with current holding capacity at 618.2 tonnes, as per the latest data revealed by the World Gold Council (WGC). Alongside, being one of the leading importers in the World Market with an annual consumption of 800-900 tonnes, India reports imports worth $8.45 billion. So, one can easily assume that people are fond of gold. In India, people buying the yellow metal as a status symbol or on various ritual occasions is, therefore, a famous picture. Moreover, apart from being a status symbol, gold is more of an asset in the present days and acts as a friend in the trying times. Gold can be used as a form of the mortgage against a secured loan at the time of a financial emergency. Also, the gold loan interest rate is comparatively low as compared to other investment plans. Read below to check more.
What is a Gold Loan?
Gold Loan, also referred to as a loan against gold in more familiar terms, is a secured loan where banks and other financial institutions provide the customers with a loan amount as per the market value of the quantity of the gold articles they wish to hold as mortgage. The loan amount sanctioned by the lender usually comes with a general interest rate, which varies among different institutions and banks. The process of repayment is simple. The person availing the loan agrees to pay back the principal amount sanctioned at the time of credit along with a nominal interest amount, which is divided into easy monthly installments for the benefits of the customers. After the repayment has been made, claim over gold articles can be held back.
How does a Gold Loan Works?
The entire process of availing loans via gold is quite similar to cases of other secured loans where the customer mortgages his valuables for monetary help. Before sanctioning any investment based on gold as a mortgage, the lender evaluates the current market rate of the gold in the form of ornaments or gold coins or gold bars, checks its purity, weight, and verifies the submitted documents. Unlike other secured loans such as a car loan or home loan, you can utilize the loan amount to meet any need, and no one can impose any restrictions. The repayment term generally lasts from a minimum period of three months to a maximum of four years. If the customer fails to repay the loan amount, he loses the right to claim back the gold he has kept as a mortgage.
Eligibility to apply
Any individual resident of India, possessing gold can apply for a gold loan. You do not need to meet any such eligibility criteria to avail of a gold loan, unlike other forms of investments such as personal, auto and payday loans where there is a specific list for the same. Housewives, service members, and even farmers between the age of 21-60 (age limit varies from bank to bank) can apply for a gold loan. Financial institutions and banks don’t look at your credit score before lending the loan amount but on the current market value of the gold in possession.
Usually, gold loans are comparatively cheaper and affordable as the rate of interest charged is minimal. Moreover, they hold no specific set of requirements or eligibility to apply for. They also meet the immediate financial needs of people in times of emergency, as gold loans can be processed faster and easier than a general secured loan.
How does a Gold Loan Works?
The entire process of availing loans via gold is quite similar to cases of other secured loans where the customer mortgages his valuables for monetary help. Before sanctioning any investment based on gold as a mortgage, the lender evaluates the current market rate of the gold in the form of ornaments or gold coins or gold bars, checks its purity, weight, and verifies the submitted documents. Unlike other secured loans such as a car loan or a home loan, you can utilize the loan amount to meet any need, and no one can impose any restrictions. The repayment term generally lasts from a minimum period of three months to a maximum of four years. If the customer fails to repay the loan amount, he loses the right to claim back the gold he has kept as a mortgage.
What is the status of interest rate on Gold Loan?
Gold Loan is considered to be a secure form of a loan. The interest in the gold loan is comparatively low as compared to another type of investment. You can avail of a gold loan from both banks and NBFC. You can avail low-interest rate from the bank in comparison to the NBFC. It is advised to undertake a complete comparison of different bank rates and gold loan offers.
How do the lenders determine the gold value?
A complete evaluation of gold is done. The gold’s ornament purity and weight are checked. The market value and the present value of gold is calculated. Most of the lenders offer a gold loan upto 75% of gold’s market value. For example, if the value of gold is 2 lakh. Then the amount sanctioned will be Rs1.5lakh. A Loan to value ratio is also calculated. The final loan amount depends on factors such as tenure and borrowers’ repayment capacity.
What is the procedure for payment of loan?
The repayment of loan depends on the lender. In most of the cases, the payment of interest rate is made every month, and the principal amount can be made at the end of tenure. We can also choose to pay our gold loan through EMI’S. EMI(equated Monthly Installments) will include the payment of both principal and the interest amount together.
What is the tenure for Gold Loan?
The tenure of the gold loan can vary from one lending institution to another. On average, the period can last between 3 to 12 months. In some cases, lenders can extend the period or provide a longer tenure. But, there is a necessary caution that we must take into a note. Make sure that you make a timely payment within the specified period. Delay in payment or half payment can lead to a significant loss. In the event of default, a person can lose their gold articles forever.
Gold loan: An alternative for low credit score
Various individuals struggle with having a low credit score or no credit score. As the gold loan is secured, it is a good option for such people. Availing a gold loan can be a chance for opportunity. With regular payment made each month, it can help to improve the credit score.
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