Gold Loan: Advantages and Disadvantages

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In times of dire necessity, gold lending firms have been a lifesaver. People might get the money for their various needs by mortgaging their gold jewellery at the lowest gold loan interest rate. India is one of the top purchasers of gold, which is an important point to keep in mind.

India is by far the largest importer of gold for domestic use. Individuals have used the golden metal for a variety of things. It is one of the most secure tangible investments. In addition, the gold ornament can be utilised to get a low-interest gold loan during a financial crisis.

You can utilise your gold items to support your immediate financial needs if you have a pressing need for cash. Instead of selling your gold, pledge it to a loan organisation. In India, a number of banks and non-bank financial institutions (NBFCs) provide consumers with gold loans at competitive interest rates. However, you should be informed of the gold loan application process as well as its benefits and drawbacks, which are further covered in this piece.

What is the Gold Loan Procedure?

The application process for a gold loan may be broken down into four parts: gold submission, evaluation, documentation, and authentication.

  • Gold Submission

As you are already aware, in order to obtain a gold loan, you must present the lender with your gold jewellery or coins that the bank has produced as security or collateral. Therefore, owning gold is essential for a gold loan. Both online and offline options are available for submitting applications. You must, however, physically visit the lender’s branch in order to deliver your gold.

  • Gold Evaluation

The gold value then dictates the amount of loan you will get from the lender. The higher the value of your gold will be, the higher will be the loan amount. Lenders usually give a maximum of 90% of the gold value as the loan amount. Lenders have the in-house gold evaluation process so it takes less time.

  • Documentation Process
  • Two passport-sized Photographs
  • Identify Proof – Aadhar Card/ PAN Card/ Driving Licence/ Voter ID Card
  • Address Proof – Aadhar Card/ Passport/ Electricity Bill/ Telephone Bill\
  • Authentication and Loan Disbursal

As soon as the authentication process is done, the loan amount will be disbursed into your savings account. So, you can see how this process can be done by anyone with the utmost ease and convenience.

Advantages of Gold Loan

1. Greater Loan Amount

A gold loan enables you to obtain the largest loan amount possible in exchange for your pledged gold jewellery. The Loan-to-Value Ratio is typically used by lenders to determine the loan amount (LTV). For a gold loan, this percentage might range from 65% to 90%. According to this ratio, you can borrow a maximum of 90 percent of the total gold value and a minimum of 65 percent.

If the total worth of the gold is INR 10 lakh, you may acquire a maximum loan amount of INR 9 lakh and a minimum loan amount of INR 6.5 lakh. Additionally, keep in mind that different lenders have different LTV ratios.

2. Gold Loan with Cheap Interest Rates

Borrowers have benefited from the rivalry between the top gold loan banks and gold loan businesses. Gold loans now have significantly lower interest rates. The lowest gold loan interest rates are provided by some of the leading firms, including ours. For any form of financial need, forgo personal loans and company loans and choose instead for gold loans.

3. Minimum Documentation  

Formalities required for processing and sanctioning a gold loan are minimal at best. The only paperwork required by the borrower is identification and address verification. Your financing is ready after you give the gold lending firm the collateral and the necessary paperwork.

4. No foreclosure Charges  

While some lenders do not impose any pre-payment fees, certain banks do impose a 1 percent pre-payment penalty.

5. Flexible Repayment Terms

Another benefit of applying for a Gold Loan facility is the ability to select the repayment option that best suits your needs. Any lending facility must have a repayment plan in place, and there are numerous options for gold loans. You may find four primary repayment options in the list below.

  • EMI Method: A monthly payment for the duration of your term that includes both principle and interest
  • Interest Payments Occurring Frequently – Pay the principle amount at the end of the term and the interest amount on a regular basis (monthly, quarterly, semi-annually, or annually).
  • Pay the entire interest payment up front and the remaining principle balance at the conclusion of the term.
  • Pay nothing during the term with a bullet repayment. Instead, pay the whole amount of the loan, including the principle and interest.

6. No Credit History is Necessary

A gold loan can be a good choice for you if your loan applications have been repeatedly denied owing to a bad repayment history because lenders don’t look at your credit history while making the loan. This is due to the security that you provide in the form of gold jewellery or bank-minted coins. For people who need a loan with lax qualifying requirements, a gold loan is the ideal option.

7. No Processing Fee

A lot of banks and NBFCs charge nothing for processing gold loans. Even if a lender charges processing costs, they are often under 1%.

Disadvantages of Gold Loan

1. Your Gold Investments are at Risk

As you are aware, you are required to pledge your gold coins and jewellery as collateral for the loan, and the lender will return your jewellery after the loan has been repaid in full. One issue, though, that you should keep in mind is that if you don’t pay back the loan in full or default, the lender may be able to sell your jewellery to recoup the debt.

2. Affects CIBIL Score

While approving the loan, your credit history is not checked; but, if you default on a payment, your CIBIL score will suffer. It is thus encouraged to make timely repayments of the loan balance using the method you choose when applying, if applicable. Additionally, regular payments might raise your credit score.

3. Lower Loan-to-Number Ratio

For loans secured by gold, this value is lower. The loan amount is limited to a maximum of 90% of the gold value. And if you are a valued customer of the bank, this is the best scenario; otherwise, it may only be 65 or 85 percent.

4. The weight and Purity of the Gold will determine how much is borrowed in gold

The purities and weight of the gold will be scrutinised by the top gold lending banks and gold loan businesses. Depending on both, the gold loan would be accepted.

5. Only for brief Periods of Time

The payback period for gold loans is typically one year or, in the case of large sums, up to three years.