Thursday, February 29, 2024

Opting for the Gold Loan for the First Time? Here’s What You Must Know.

A gold loan by nature is a secured loan wherein you must pledge your gold ornaments as security or collateral with the lender i.e., NBFC or bank. The lender, in turn, will endow you a loan depending on the market value of gold you submitted. After you finish repaying the loan proceeds and interest at the end of your selected repayment tenure, your gold will be returned. So, suppose you applied for an SBI gold loan, now the lender i.e., SBI will check your gold ornaments submitted and based on the market value agree upon providing an amount on which you must also pay an SBI gold loan interest rate. Once you repay your entire SBI gold loan in full, the lender will hand over the gold you pledged.

Borrowing funds against gold deposits is a very common practice in our country. Lenders tend to disburse funds against gold security provided to them. The funds received may be used for any purpose just like personal loan i.e., you can use the received funds on gold loan to expand your business, meet your own or business expenses, meet medical expenses, or mitigate any other financial requirement without the requirement of depending on anyone for meeting your needs.

While a gold loan is considerably a simple way to get immediate funds, you might have various doubts regarding the same. So, mentioned here is a list of all the common questions and the answers by the expert to assist you –

What is meant by a gold loan?

A gold loan actually is a secured credit option wherein you must pledge your gold as security or collateral with the lender i.e., the NBFC or bank. The lender will, then endow you a loan proceed depending on the gold’s market value. Once you repay your loan proceeds in full along with interest by the repayment tenure, your gold ornament and jewellery too will be returned.

What kind of gold jewellery can you put up as pledge?

You can pledge any gold jewelery. The gold’s purity will determine the amount you can borrow. Remember that banks do not agree to​ loan you if you provide​ gold coins, gold bars or bullions ​as collateral or security.

Also Check: SBI Gold Loan Interest Rate

How can you get a gold loan?

Once you pledge the gold to the lender, your offered gold will be assessed to understand its purity. After this, the lender will enlighten you about the loan value that you can take up. According to the guidelines by the RBI, this amount can be as high as 75 per cent of the gold value. You must pay a processing charge, which is levied according to the lender’s policy.

Is your gold thoroughly safe with the lender?

With unlicensed NBFC or bank, you can be in deep risk with your gold being swapped or misplaced. Here’s why it is recommended to apply for the gold loan from a lender, who is reliable like State Bank of India, Punjab National Bank. HDFC Bank, ICICI Bank, etc. And as the loan is in a secured vault, you do not require worrying regarding its safety. Hence, with assured safety of your valuables, you can stay in peace of mind.

What documents must you provide for the gold loan approval?

Besides submitting one passport sized photo, you must submit any one of your proofs of identity i.e., driver’s license, passport, or Aadhaar card and your address proof i.e., your electricity bill or phone bill. If you do not have any PAN card, you can submit your form 60.

Who can place an application for a gold loan?

Anyone who is the age of 18 years or above can opt for the gold loan.

How much exact time is taken for processing your gold loan?

With all your documents in the right place, a trustworthy lender can process your loan proceeds within the same day of placing the application for a gold loan.

What are the gold loan repayment choices available?

Lenders provide multiple and convenient repayment choices that you can select depending on your conveniences and preference. These include –

  • Overdraft option – This is the option where you must pay the interest only on the amount used.
  • Regular EMI – Repayment here is in form of EMIs, just like in other loan options.
  • Bullet repayment – There is zero EMI involved in this case, you can pay both interest and principal constituent together, by the end of loan repayment tenure.
  • Upfront interest constituent – You must pay the whole interest constituent in the beginning or repayment tenure and principal constituent towards the end.

What’s a loan repayment tenure?

The repayment tenure of a gold loan is generally anywhere between 6 months and 2 years based on the bank. For instance, HDFC gold loan repayment tenure begins from six months and may go as high as twenty-four months. Few lenders even provide an extension upon the repayment tenure just restructuring your loan. However, it can incur a higher interest constituent, which may mean a higher loan payout.

What will happen if you do not make repayment of the gold loan?

Before you avail a gold loan, it is important for you to understand and assess your repayment potential. The lender holds full right to auction the gold to recover the rest of the loan proceeds in the case of your default of your gold loan repayment.

What’s the gold loan interest rate?

​The r​ate of interest on gold loans is lower than interest provided on other credit options like loan against mutual funds, loan against credit card or personal loan. This rate of interest usually ranges anywhere between 8 – 26 per cent per annum based on the lender you opt for.

Should you opt for an NBFC or bank?

Today, you can opt for a gold loan from banks and NBFCs across India. While both financial institutions provide an LTV (loan to value) ratio of 75 per cent, here’s a precise guide on which is a better option for you.

Gold loans from trusted lenders like ICICI bank, HDFC bank or SBI tend to come with lower rate of interest than NBFCs. Apart from this, many private and public sector lenders have a ​quicker turnaround time too. So, if you are able to get a loan from a bank then you must opt for it. Otherwise, you can go for an NBFC.

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