Gold loans are loans where you give your gold to a bank or a finance company in exchange for money. People have been doing this for a long time. But now, banks and other companies are doing it too, making the process more official and clear compared to before when people would go to private lenders. Reports say that there's a lot of gold just sitting around in India, about 18000 tonnes. So, banks and finance companies are really pushing for more people to take out gold loans.
Gold loans can be a more affordable option, especially if you need money quickly for a short time, compared to using credit cards or getting personal loans. However, it's important to fully understand everything about the loan before you agree to it.
Benefits of Gold Loan
- If you're in agriculture, you might qualify for a reduced interest rate, sometimes as low as 8%.
- With a gold loan, your chances of approval aren't affected by a bad credit history because it's a secured loan.
- You can choose to pay just the interest during the loan term and settle the principal amount in one go at the end.
- The paperwork for a gold loan is minimal since your gold acts as collateral. You typically only need your personal ID and address proofs.
Whom should you approach for taking a gold loan: a Bank or an NBFC?
Before deciding where to get your gold loan from, make sure to look at all your options. Consider these things:
- Loan Disbursal Time: NBFCs are quicker in giving out loans, usually just taking a few minutes.
- Interest Rates: Compare the interest rates from banks and NBFCs. Banks usually have lower rates.
- Repayment Flexibility: NBFCs might be more flexible with how you pay back your loan.
- Pre-Payment Penalty: NBFCs usually won't charge you extra if you pay back your loan early, but banks might.
What happens when the price of gold fluctuates?
Changes in gold prices won't impact your loan or the gold you've pledged. Even if gold prices drop significantly after you've taken the loan, you won't be required to make up for the difference in value, even if your loan ends up being worth more than the value of your gold.
What to watch out for:
Default Repayment: If you can't repay your loan, the finance company can sell your gold to get their money back, as agreed in the loan terms.
Loss of Gold Value: If this happens, you might not get the full value of your gold back because the maximum Loan-to-Value ratio is usually 75%.
Penal Interest Charge: If you miss payments, the lender may charge you extra interest on top of what you owe.
Important things to know about gold loans:
- Individuals aged 18 and above who possess gold eligible for collateralization may avail themselves of these loan options.
- Lenders provide loans of up to 80% of the assessed value of gold after verifying its purity and determining its market worth.
- Items such as coins and bars with higher purity typically command a higher appraisal compared to gold jewelry, which is evaluated primarily for its gold content, excluding any embedded precious stones.
- The interest rate on such loans ranges between 13% and 16% annually. Repayment terms usually span from 12 to 60 months, with equal monthly installments covering both principal and interest.