What Is Gold Loan ? Meaning & How It Works, Gold Loan Interest Rate

One of the world’s biggest users of gold is India. According to the World Gold Council (WGC), India’s annual demand for gold surged by 804% between 1987 and 2016. It can be used as collateral for gold loans, which are frequently used to get funds for both long- and short-term purposes. The gold loan is actually one of the simplest and quickest ways to get money when you need it.

The gold loan may be your best financial option, even if you have lots of unused gold in your safe but a low credit score. With the growing popularity of gold loan every year, it is necessary to know not only what a gold loan is but also how it operates, gold loan interest rates, and other associated data.

Gold Loan

The meaning of a gold loan is a secured loan taken by borrowers seeking to meet their immediate or long-term cash demands against gold. Lenders typically approve you for a loan in an amount that corresponds to a particular portion of the gold’s value. You can receive your gold items back after paying them back in monthly installments. In this case, the borrower guarantees their gold jewellery as security. According to the Reserve Bank of India, the amount of the loan allowed may not exceed 90% of the gold’s current market value. The gold that can be pledged ranges in carat weight from 22 to 24.

Thus, it’s a terrific option to meet your urgent financial demand, whether it’s for a wedding, a family trip, or your child’s school. In addition, many commercial and nationalised banks as well as NBFCs provide gold loans at low-interest rates.

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How does a gold loan work?

The entire gold loan process is very comparable to other secured loans. In this scenario, you deliver your gold items and the necessary paperwork to a lender. The lender assesses the gold items and examines the submitted paperwork. The lender approves the loan amount based on the evaluations. According to the loan agreement, you repay the principal and interest payments and receive the returned gold items.

What is the interest rate on which lenders give the gold loan?

Since a loan given against gold is secured, it has a lower interest rate. The interest rates charged on these loans vary from one lender to another and rely on a number of variables, including the term of the loan, its size, etc. Also, it depends on where you are borrowing the gold: from a bank or an NBFC. In general, banks charge lower interest rates on loans against gold compared to NBFCs. Hence, if you intend to apply for a gold loan, resist the need to take the first offer you are given. Make your decision after comparing gold loan offers from at least two to three lending institutions.

How to get a gold loan?

You must first have your gold jewellery, coins, biscuits, or other tangible forms of gold on hand in order to apply for a gold mortgage loan. Choose a bank or NBFC that provides loans against gold products in India after that. The interest rate might vary from 7 to 29% annually, depending on your creditworthiness and CIBIL score.

The lender (a bank or an NBFC) will examine your gold at home or in a physical branch of the business to ensure its purity. Identity and address evidence are two forms of paperwork needed for a gold mortgage loan. A PAN card, Aadhar card, current passport, or voter ID card are examples of acceptable government-issued documents.

You are qualified to collect the money once the personal verification and the gold have both cleared. But, if the loan is not paid back, the gold that was pledged might not be recovered. If the lender offers online loan applications, you can do so as well.

What is the gold loan tenure?

One lending institution may have a different prepayment policy or tenure from than another. The typical range is 3 to 12 months. Some lenders may even let you renew it so you can extend the tenure, depending on the circumstances. Be sure you repay the loan amount on time because the gold loan has a shorter term than other sorts of loans. Defaulting on gold could result in the permanent loss of your gold possessions.

Benefits of Gold Loan

• Quick and Easy Access to Funds

  One of the most significant advantages of a gold loan is its quick processing. Financial emergencies often require immediate access to funds, and gold loans offer just that. The simple process involves minimal paperwork, ensuring borrowers can get the required funds swiftly. This speed can be crucial during medical emergencies, education expenses, or business needs.

• No Credit Checks and Flexible Eligibility

  Gold loans do not require a credit check, unlike other types of loans. This makes them accessible to individuals with poor credit histories or those without a stable income. You are eligible for a gold loan as long as you own gold. This flexibility in eligibility widens the scope of people who can benefit from this financial option.

• Lower Interest Rates

  Gold loans generally have lower interest rates than unsecured loans like personal loans or credit cards. This is because the gold you pledge serves as collateral, reducing the risk for the lender. Lower interest rates mean reduced financial burden on the borrower, making it a cost-effective borrowing option.

• High Loan Amounts Based on Gold Value

  The loan amount you receive is directly proportional to the value of the gold you pledge. This means you can secure substantial amounts, making it suitable for significant expenses like business investments, education abroad, or debt consolidation. The value of gold is determined by its purity and current market rates, ensuring a fair evaluation.

• No Prepayment Penalties and Versatile Usage

  Gold loans offer the flexibility of repaying the loan amount anytime during the tenure without incurring prepayment penalties. Additionally, there are no restrictions on how you use the loan amount. Whether for a wedding, home renovation, or any other purpose, the funds can be utilized according to your needs.

Eligibility Criteria for Gold Loan

• Individuals between 18 and 75 years can apply for a gold loan.
• The applicant must own gold jewelry, coins, or bars to pledge as collateral for the loan.
• The gold items being pledged should meet the lender’s specified purity criteria, often ranging from 18 to 24 carats.
• The sanctioned loan amount depends on the pledged gold’s weight and current market value.
• Applicants must provide government-issued identification documents such as an Aadhar card, PAN card, passport, or voter ID.
• Lenders require proof of residence, which can be established through utility bills, ration cards, or driver’s licenses.
• While some lenders do not require proof of income, a stable income can enhance the borrower’s credibility and loan approval chances.
• Individuals with a good repayment history of previous loans are often considered favorably.

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Documents Required for Gold Loan

• Proof of Identity (Any One):

  Aadhar Card, PAN Card, Passport, Voter ID, Driving License.

• Proof of Address (Any One):

  Aadhar Card, Passport, Voter ID, Utility Bills (electricity, water, gas), Ration Card, Driving License.

• Passport-size Photographs:

  Recent passport-sized photographs of the applicant.

• Proof of Ownership:

  Invoice or receipt of the pledged gold item (if available).

• Form of Gold:

  Details about the form of gold being pledged (jewelry, coins, bars) and its purity level (in carats).

• Duly Signed Application Form:

  A filled and signed application form provided by the lending institution.

• Income Proof (Optional):

  Some lenders may require income proof, although gold loans are often granted without this requirement.

• Borrower’s Signature Proof:

  Signatures on the application form should match those on the identification documents.

• Witness Letter:

  Sometimes, a witness letter from a known person in the locality must confirm the applicant’s identity and address.

• Bank Account Details:

  Some lenders may ask for the borrower’s bank account details for loan disbursal and repayment purposes.

Frequently Asked Questions

What is the benefit of a gold loan?

The main benefit of a gold loan is its quick access to cash in times of need. It offers immediate liquidity without the hassle of credit checks. Additionally, it has lower interest rates than unsecured loans, making it a cost-effective solution for short-term financial requirements.

Is gold loan safe or not?

Yes, gold loans are generally safe. The safety lies in the fact that the lender securely stores your gold, and the terms and conditions are transparent. Defaulting on payments can lead to a loss of the pledged gold, so it’s crucial to repay on time to ensure the safety of your assets.

Which is better normal loan or a gold loan?

Choosing between a normal loan and a gold loan depends on your needs. A gold loan is efficient if you need quick cash, minimal paperwork, and have gold to pledge. For larger amounts, long-term needs, or if you lack gold collateral, a regular loan might be a better choice, offering varied repayment terms and interest rates.