The majority of Indians hold gold jewelry in their homes or bank lockers. In India, gold has traditionally been considered an investment. It is purchased for special occasions such as weddings and given as a gift for important occasions such as the birth of a child or birthdays. Gold is a valuable metal that holds its value throughout time, even when prices fluctuate due to economic policies or geopolitical events. For most Indian families, it retains its sheen and attraction. As a result, it is assumed that every household will have a gold reserve that they can draw upon in times of need.
What is a gold loan?
A gold loan is a secured loan obtained from a lender in exchange for gold items such as gold jewelry. Lenders usually approve a loan amount based on a percentage of the gold’s value. You can repay it in monthly payments and keep your gold things. Gold loans, unlike other secured loans like a home or car loan, have no restrictions on how they can be utilized. It’s a great way to cover a last-minute financial need, whether for a wedding, a family vacation, or your child’s education. Gold loans are also available from a number of commercial and nationalized banks, as well as NBFCs.
How does a gold loan work?
The gold loan procedure is identical to that of other secured loans. You take your gold items and the relevant documentation to a lender. The lender examines the gold items and checks the documentation that has been presented. The lender approves the loan amount based on the findings. As per the loan arrangement, you repay the money plus interest and receive the pledged gold objects.
Before applying for a gold loan, there are numerous factors to consider, which are given below:
Tenure
Gold loans have a short repayment period. Most institutions offer a one-year gold loan, however, others may extend it up to 24 months. So, before taking out a gold loan, make sure you can repay it within the stipulated time frame.
Interest rate
The interest rates on gold loans are lower than those on personal loans. However, interest rates vary amongst banks, NBFCs, and other local lenders. Depending on the type of lender, gold loan interest rates might range from 9 to 20%.
Loan amount
It is impossible to obtain a 100 percent loan against the value of gold. Gold loans are available for as little as 60% of the gold’s worth and as much as 85-90 percent. This, however, is entirely dependent on the lending institution and its gold loan policy. There are two methods for calculating the loan amount. Either the last two weeks’ gold prices are averaged, or the gold price on that particular day is taken into account.
Repayment process
The standard repayment strategy for a gold loan is that the borrower pays regular EMIs throughout the loan term. The gold pledged as security is returned to the borrower once the loan term has ended and all outstanding debts have been paid.
Although gold loans are not the most lucrative alternative, they are preferable to personal loans because they involve less paperwork and have lower interest rates. You should take out a gold loan only if you are confident that you will be able to pay back the principal and interest within the loan payback period.
