The borrower can repay the amount through monthly installments after the completion of which the gold articles are returned. Unlike other secured loans, like home loans and car loans, there are no restrictions on the end-use of gold loans. Thus one can use a gold loan scheme to fund weddings, family vacations, or one’s education, as it is a great way to meet one’s sudden money requirements. Moreover, a lot of banks ( like Indian Bank Gold Loan) and NBFCs offer gold loans at affordable interest rates.
The entire procedure of gold loans works quite similar to other secured loans. Under a gold loan scheme, the borrower takes the gold assets to the lender along with the necessary documents. Then the lender checks the gold articles and verifies their worth and the documents that are submitted. According to the evaluations, the lender sanctions the loan amount. According to the loan agreement, the borrower has to pay the principal amount along with the interest that is to be charged to get back the gold assets.
Anyone who has gold assets stored in their locker is eligible to apply for a gold loan. Unlike other loans, such as personal loans one does not have to worry about eligibility criteria, as gold loans can be availed by any Indian resident which includes salaried professionals, housewives, businessmen, and even farmers. Further, one does not have to worry about the credit score to be eligible for a gold loan. Thus if a borrower has a low credit score and still needs funding then he or she can apply for a gold loan scheme.
Gold loans being a secured form of loan have a low rate of interest that is charged upon the principal amount. Gold Loans Interest Rate is lower as compared to unsecured personal loans as they come along with the collateral value. The interest rates charged on gold loans vary from one financial institution to another and depend on various factors such as gold loan tenure, loan amount, etc. It also depends if the borrower has applied for a gold loan scheme in a bank or an NBFC. Banks usually charge a lower rate of interest than NBFCs. Thus it is a better option to compare two or three lending institutes before making a decision.
The repayment tenure of gold loans also varies from one lending institution to another. Usually, it ranges from 3 to 12 months. Depending on each case some lenders offer a longer tenure to renew it to extend the tenure. Since the tenure of gold loan schemes is shorter in comparison with other types of loans thus one should make sure to deposit the installments on time to get their gold assets back.
Before approving one’s loan application the lenders always evaluate the purity of the gold and its weight that is provided as collateral. Based on this, the gold’s market value is determined based on its current rate, which further helps in reaching the final gold amount that is to be sanctioned by the lender. Most lenders offer a gold loan amount with a value of up to 75 to 80 percent of the pledged gold’s market value. For example, if a borrower has pledged gold of INR 2 lakhs then he or she will not get more than INR 1.5 lakhs of a loan sanction. Besides the loan to value ratio and the loan amount depends on various other factors such as tenure and the repayment capacity of the borrower.
Most lending institutes let the borrowers pay the interest amount each month and the principal amount at the end of the tenure. One can also choose to pay a gold loan through EMIs which might include both the principal amount and the interest component of the loan.
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