Gold loan is a type of secured loan, where you offer your gold as collateral against the sum availed. The provided loan amount is a percentage of the total value of the gold. Just like any other loan, it is also repaid as monthly installments known as EMI. The lender hands you back the gold (collateral) once the load has been paid back in full. Banks, NBFCs, or other financial institutions offer gold loans at a reasonable rate. Most often, borrowers, utilize this loan, to meet urgent financial needs. At other times, increasing wealth is most likely to be the goal for a borrower. The loan is processed within an hour, offering you cash liquidity in times of an emergency.
The number of facts about gold loans outweighs the myths about it. Below we have listed for you a few myths and facts:
Myths about Gold Loans
- Time-Consuming: Banks or NBFCs, if pleased with your credit score and the purity of the gold, can disburse cash within an hour. Making it the fastest medium to obtain a loan compared to the others.
- High-interest rate: Banks and NBFCs offer a low rate of interest ranging from 11-20% annually with a 1-2% processing fee. Whereas, personal loan interest can go up as high as 28%.
- Traditional Jewelry will not be accepted: There is no law stating that you must only pledge new or ‘modern’ jewelry to secure a gold loan. Banks and NBFCs are more concerned with the purity of the gold than with the make of it.
- Only jewelers can authorize a Gold Loan: A bank or an NBFC follow strict government protocol in matters of gold and money. How can a local jeweler provide safety for your gold? Several NBFCs only offer gold loans, visit one next to you.
- Misplacements: This is a far-fetched myth. If you trust your gold with non-authorised local jewelers or vendors, they may replace your gold with fake ones at the time of giving it back to you. Far from this myth, your gold is stored away in high-security vaults at banks and NBFC facilities for maximum security. Once the loan is paid off, your gold is returned to you as it is.
Facts about Gold Loans
- Type of Gold: Lenders need to gather facts before pledging their gold for cash. Gold that needs to be pledged must 18-24 karats and in case of gold coins, they must be 99.99% pure, weighing at least 50 grams.
- Research: Just like you are reading this article right now for research, you must also research your potential lenders. Compare interest rates and processing fees, to make an informed decision.
- LTV Calculation: Banks and NBFCs calculate the market value of your gold. You are provided with only 75% of the total value of the gold. Calculate the amount of gold you need in cash and apply accordingly.
- Repayment: Regular EMIs, partial repayment, Only interest EMI, and Bullet repayment are some of the options you can choose from to repay your loan.
- Extra Charges: Make a note of the processing fee, documentation fee and other hidden charges that may cost you later. Long amortization period may end up costing you more.
- Final Words
Don’t take more than you can pay back, or you might end up losing your asset if you can’t repay your loan. Gold loans are hassle and documentation free, in times of an emergency than personal loans. If you are an Indian national, who is 18 years of age or above with the right credits and verifiable gold, you can easily be approved for a gold loan of any amount. You can leave your gold at the lender without any fear as it might be safer there than at your own home.