For many years, man has traded gold for money. Gold is not only a lucky and valuable asset but is also important as a source of monetary stability. If you need funds for a short term, gold loans are more suitable than credit cards or personal loans, but complete information is necessary before giving your consent for a gold loan.
What are Gold Loans? What is Gold Loan?
A gold loan is a secured loan offered by a lender to a borrower against gold-related items, usually a fixed percentage of the current net worth of the gold as the loan amount.
Gold loan is a secured loan in which gold jewelery is given as security. The price of gold will decide how much loan will be given. When you apply for the loan, you must give your gold jewelery to the lender, which will be returned only when the full amount is repaid.
Gold loans are available from many banks and non-banking financial companies (NBFCs) at competitive interest rates. Since collateral is being provided, the loan can be availed at lower interest rates.
Apart from a basic understanding of what gold loans are, it is important to understand other gold loan eligibility criteria affecting the gold loan amount per gram of gold, the total value of the gold pledged and the credit amount provided.
After taking a gold loan, to get back his gold items, the borrower has to repay the loan in installments during the loan tenure which can be monthly, quarterly or annually.
Once you know what gold loans are and how they can be availed, you will realize that gold loans are best for important events and expenses such as weddings or unforeseen expenses.
Key Features of Gold Loan
Objective: You can avail gold loan to meet various needs, such as education, health, hospital, marriage, travel etc.
Security: Gold pledged with the bank or financial institution is secured and acts as the collateral against which the loan amount is granted.
Rate of interest: The interest rate depends on your credit score and the gold loan policy of the borrower. Gold loans generally carry an interest rate of 8-18%.
Tenure): The loan tenure can range from a minimum of 3 months to a maximum of 60 months.
charge: Processing fee, Late payment fee, Penalty for non-payment of interest, Appraisal fee, Other charges as applicable on Gold Loan.
repayment optionThere are three main options offered by the lenders to the borrowers for repayment of the gold loan.
- Equated Monthly Installment (EMI) with interest
- Advance payment of interest and repayment of principal loan amount at the end of the loan tenure.
- Payment of monthly interest and repayment of principal loan amount at the end of the loan tenure.
Discount: Many lenders offer a discount on the prevailing interest rate on the gold loan if the borrower makes regular installments and pays the interest. This discount can be 1-3% on the original interest rate.
Eligibility Criteria for Gold Loan
If you wish to apply for a Gold Loan against your gold ornaments or jewellery, make sure that you meet the eligibility requirements of the lender.
Keep in mind that each lender may have different requirements for applying. Hence, be sure to check the eligibility criteria on the lender’s website before submitting the gold loan application. The following are the general eligibility requirements:
- Age of the applicant – 18 years and above
- What to pledge – Gold jewelery or ornaments
- Total Carats of Pledgeable Gold – 18K or above
- Other Criteria – Good credit score of the applicant
What are the documents required for gold loan?
- duly filled application form
- identity proof
- Address proof
- signature proof
- passport size photo
- Form 60 or PAN Card
- proof of age
- Post loan disbursement documents, if any.
How to apply for Gold Loan?
- You can apply for Gold Loan online or offline.
- If you are not able to apply online then you will have to visit the nearest branch of the lender.
- Once you submit the application form, the lender will verify your application.
- If the application is approved, you will receive the loan amount.
Important things to note while taking Gold Loan
- loan amount
- rate of interest
- loan term
- applicable fee
- eligibility criteria
- repayment schedule
- compare loans
- credibility of the lender
How does gold loan work?
It is easy to understand how gold loans work. To avail a gold loan, the borrower has to be given gold in the form of coins or jewelery by the lender. Loan amount up to 75% of the total value of the pledged gold articles can be availed. Any Indian citizen who owns gold is eligible to apply for a gold loan.
Once you have given the gold item to the lender, an appraiser will appraise it and determine its quality and current market value. Once you have agreed on the loan amount and fees, you can start the documentation process.
When your loan is accepted, the money will be transferred to your bank account and the lender will have the gold as collateral. During the repayment process, the loan balance and the interest charged by the lender are fixed to be repaid.