One of the reasons why many invest in gold is its liquidity. You can easily apply for a gold loan by pledging your gold as security and getting immediate access to funds. Moreover, it comes with attractive interest rates, making it affordable.
However, a gold loan is a secured loan. This means the lender can seize your pledged asset if you do not repay the loan. Given this, you should apply for a gold loan after careful consideration.
Doing this will allow you to choose the right loan terms and ensure that you can repay comfortably without straining your finances. It will also help you get the best deal and the most from your asset.
Read on to know some crucial features of a gold loan and make an informed decision.
Disbursal Period
Gold loans fall under secured loans, where you pledge an asset as collateral and get funding based on its value. The security provided by the collateral allows financial institutions to offer this loan quickly and more affordably as compared to unsecured loans.
Many lenders give you access to funding in a matter of hours. One reason for this is that the verification of gold loan applications is comparatively quicker. The lender only has to check the purity of your asset to determine its value.
In addition to this, the documentation for a gold loan is minimal, which helps lenders quickly verify your application. As such, you can apply for a gold loan if you need quick access to funds.
Interest Rates
Another important aspect of gold loans is that they come with lower interest rates than other financing options. The key factor contributing to this benefit is that these are secured loans. This means that you offer collateral, which serves as a safety net for lenders.
This reduces the risk for the lenders, which translates to favorable interest rates. Given this, you also have a reduced borrowing cost, enabling you to save money in the long run. You can use a gold loan EMI calculator to compare different offers and choose the best one.
Digital Application Process
Another aspect you need to know is that you no longer have to visit the lender’s branch to get a gold loan. Today, strides in the fintech industry have resulted in a 100% digital loan application approach offered by most banks and NBFCs.
Many lenders complement this with doorstep facilities where their executives pick up the asset from your home. Upon processing and approval, the lender transfers the funds to your account.
Loan-to-Value Ratio
This ratio refers to the amount of loan you can get against the value of your asset. When you apply for a gold loan, the amount you can receive is subject to the value of the gold assets you pledge.
The loan-to-value ratio for gold loans varies with different financial institutions. Typically, most lenders offer a loan-to-value ratio ranging between 60% and 90%. This means that if you pledge gold assets worth ₹5 Lakhs, you can get funding between ₹3 Lakhs and ₹4.5 Lakhs.
Lenders determine this ratio by considering various key factors. These include the purity of your gold, the current gold rates, and more. You can check the range of the lenders’ LTV ratio on their official website and choose accordingly.
Multiple Repayment Plans
Lenders offering gold loans also offer versatile repayment options. This allows you to choose a plan to help you manage the repayment efficiently and without burdening your income. You can choose from bullet repayments, overdraft facilities, and EMI-based repayments. You can also pay in monthly, quarterly, or even semi-annually installments.
Remember, these options vary with the lenders; not all may offer the options mentioned above. Shortlist lenders based on a plan that is right for you. If you choose an EMI plan, you can use the gold loan EMI calculator to determine which terms result in feasible installments.
Eligibility and Paperwork Requirements
The process to apply for a gold loan is streamlined, and most lenders have minimal paperwork requirements. Lenders also set simple eligibility criteria, making these loans more accessible. As such, gold loans offer a swift and hassle-free experience when compared to other credit options.
One reason for these minimum requirements is that these are secured loans, and financial institutions do not need to carry out extensive verification processes. Lenders generally only ask for some basic KYC documents. This includes your proof of identity, residency, and ownership of the gold asset.
In terms of eligibility, lenders generally require you to be an Indian citizen within the age bracket set by them. Moreover, lenders do not check your credit score and monthly income, as gold loans are secured loans.
However, it is important to note that lenders require you to have assets of a certain purity. For example, some lenders only consider 22K gold jewelry while some may also consider 18K. You can check this detail on the lender’s official website.
Versatile Use of Funds
One of the distinctive aspects of a gold loan is that there is no restriction on the usage of funds. This gives you a high degree of flexibility to allocate funds as per your needs. Some ways in which you can use the funds are:
- Pay for your child’s education or your upskilling
- Go on an international vacation
- Cover medical expenses
- Manage wedding expenses
- Start or grow a business
- Other personal uses
This freedom, coupled with the affordability of the loan, enables you to manage your finances and meet your requirements without any stress.
Minimal fees
When you apply for a gold loan, the lender levies certain fees other than the interest rate. These charges vary across lenders. One common charge is the processing fee or the application fee. Lenders may also levy a foreclosure or prepayment charge.
Understanding these costs in advance will give you a better overview of your borrowing costs. This way, you can choose the most feasible option. You can check the terms and conditions of these costs on the lender’s website and the loan agreement.
Storage of Your Asset
When you apply for a gold loan and receive the approval, your assets stay with the lender until you repay the loan. Your assets hold financial and sentimental value, and it is only natural that you want to ensure their safety.
Thankfully, lenders have adequate arrangements to ensure your assets are secure. Most financial institutions have special lockers and vaults to store the assets they receive as collateral, providing an extra layer of protection. This way, your gold remains safe from theft and damage.
Also, most lenders install cameras in these vaults and lockers to guarantee the safety of your assets. Remember, selecting a reputable and trustworthy gold loan lender is important to keep your beloved gold safe.
Now that you know these factors, be sure to assess your finances and requirements before you apply for a gold loan. A comprehensive understanding of gold loan interest rates, fees, and charges is essential for making a well-informed financing decision.
