Take a Gold Loan, Know Benefits and How to Get It
Indians have, for a long time, relying on a gold loan to meet almost any requirement, be it for higher education, medical emergencies, or business development.
- The demand for this financial product shot up more rapidly during the pandemic, with RBI reporting a rise of Rs.37,491 crore in gold loans between April 2019 and April 2021.
The popularity of this short-term loan is bound to rise further, with more individuals using it to meet temporary cash crunches. However, individuals must be aware of its additional advantages beforehand to make an informed decision.
Top 6 benefits of a loan against gold
Here are the 6 most attractive gold loan benefits that contribute heavily to this financial product’s popularity.
- Substantial loan amount
Probably the primary reason why most loan seekers rely on gold ornaments for liquidity is their high loan-to-value or LTV ratio.
Previously, the RBI mandated that lenders could sanction funds worth 75% of collateralized gold items. However, it later extended this LTV ratio to 90% in 2020 to help individuals bridge the gap in cash flow more easily amidst the pandemic.
Additionally, borrowers can enhance their loan amount by pledging jewelry items of higher purity. Most lending institutions accept gold ornaments of 18K-24K purity. These lenders will evaluate the collaterals using an industry-grade carat meter and approve a loan amount according to the precise gold purity and the applicable LTV ratio.
- Lower borrowing cost
The secured nature of a gold loan allays the lender’s risk.
As a result, borrowers can enjoy less stringent terms, including affordable interest rates. Other financial products also come with additional charges like that for processing, documentation, foreclosure, and part-payment, among others.
Popular NBFCs like Bajaj Finserv offer gold-backed funds against zero processing fees. Additionally, borrowers can partially release their pledged items by making a repayment worth the percentage of gold released. Specific financial institutions also do not charge any amount for such part-payment, thus reducing the debt burden significantly.
- Compact tenor
A gold loan is a short-term financing solution, with lenders offering compact tenors. This is an advantage for borrowers not willing to drag the loan cycle over a long period.
At the same time, a short repayment tenor also means a reduced number of installments and, hence, lesser interest outgo in the long run.
- Convenient repayment options
Borrowers can enjoy supreme flexibility in repaying a gold loan compared to other financial products. Leading financial institutions offer varying repayment structures for applicants to choose from.
Here are the 3 prominent methods:
- Borrowers can repay the total interest amount on a quarterly or monthly basis and the principal amount at the tenor’s end.
- They can pay the total interest at one go right at the beginning and the principal amount over the remaining loan cycle.
- Individuals can also opt for the EMI option, which involves a combined repayment of interest and principal components every month.
Borrowers can choose a gold loan scheme offering one of the above repayment methods, depending on their financial standing.
- Relaxed eligibility
As already mentioned, the high value of pledged assets reduces lenders’ risk, resulting in less stringent eligibility criteria of gold-backed loans.
The eligibility criteria of gold loans are simple to the extent that even individuals with poor credit scores can obtain them.
In order to qualify for a gold loan, applicants only need to be:
- 21-70 years old.
- A trader, businessman, salaried employee, or farmer.
However, maintaining high credibility can help applicants negotiate for a lower gold loan interest rate.
- Minimal documentation
Besides easy-to-meet eligibility parameters, gold-backed funds also involve a straightforward documentation process.
This requires applicants to submit only their KYC documents, such as ID and address proof. Such limited paperwork also makes the whole loaning process streamlined and less time-consuming.
As a result, applicants can enjoy speedy approval and disbursal, which also makes a loan against gold a highly favorable funding option during emergencies.
- High collateral security
Individuals skeptical of this financial product, solely worrying about the safety of their jewelry items, need not be anxious.
Prominent gold loan providers like Bajaj Finserv ensure the complete security of collateral with their top-notch safety protocols. Pledged gold items are stored in safe vaults where they undergo 24×7 motion-detecting surveillance. Additionally, your collaterals are completely insured against any sort of damage, misplacement, and theft.
Besides, applicants need not step out of their homes, risking the safety of their valuables. They can get their collaterals appraised from the comfort of their residence post an easy application process.
How to apply for a gold loan?
Besides the above benefits, individuals can also enjoy a simple online application process with gold-backed loans.
Here is a step-by-step guide for the same:
Step 1: Visit your chosen lender’s website.
Step 2: Navigate to the application form. Fill it in with the required details and click on ‘Submit.
Step 3: Soon after, a representative will contact you to complete the verification and gold appraisal process.
Upon approval, the lender will transfer the gold loan to your account instantly.
Therefore, when choosing between unsecured funding like a personal loan and a gold loan, consider the above points and make your choice accordingly.