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What are the Important Benefits of Availing a Gold Loan?

Indians are popular for the love that they have for gold throughout the globe. India is one of the major gold importers. Gold is looked upon as a considerable value and even as a source for potential appreciation of capital in the future. However, many are unaware of the fact that gold can be used to finance any exigency. With proceeds through a gold loan, you can finance any of your exigency needs like your kid’s education, healthcare expenses, down payment for vehicle purchase and even finance your annual vacations with family. 

When you witness a scene that needs immediate cash, you must make use of gold that may be lying idle in your savings bank account’s locker. Today, many NBFCs (non-banking financial companies) and banks offer gold loans. The best part is documents required for gold loan are minimal. These loans come in handy and simply can be sourced quickly, in a hassle-free and stress-free manner whenever there’s a requirement for instant cash and you meet the gold loan eligibility criteria. You can avail a gold loan that you might possess in the form of gold coins, jewellery, etc. Here, in this article, discussed are some of the important benefits of a gold loan and why you as an individual must make the most out of it. 

Major gold loan benefits, you must be aware of

Instant processing of the loan proceeds

As gold loans have physical gold in the form of security or collateral, lending institutions and banks can simply offer such loans. For banks, providing a loan against gold is a way safer choice as they can simply sell out the gold in the scenario of any defaults on the end of the borrower. Hence, lenders tend to disburse these loans in just a few hours. This leads to lesser processing time and thus, added convenience for you as a borrower. 

Availability of the option ‘pay interest only’

Gold loan often has a unique feature that permits you as a borrower to pay just the interest constituent while making loan repayments. The principal constituent can be paid towards the end of repayment tenure or during the loan’s closure formality time. 

Comparatively lower rate of interest

As a gold loan by nature is a secured credit option, lenders levy a lower rate of interest than unsecured credit options like a personal loan. The rate of interest for a gold loan usually ranges anywhere between 7 and 29 per cent per annum. On the other hand, the rate of interest for a personal loan usually starts from around 10 per cent per annum. For you as a borrower who can offer additional security, the gold loan rate of interest may be further lowered by the bank or concerned lender. 

No processing charges or fees

Many lenders like banks and non-banking financial companies (NBFCs) do not levy any processing charges or fees as gold loans are offered instantly upon providing gold as security or collateral to the lender. Once you pledge the gold as security, you can collect it back only if you repay the whole loan outstanding in full. 

Minimal foreclosure fees

A few lenders and banks either do not levy or have minimal prepayment fees of 1 per cent on their gold loans. 

No income document to be provided

For most of your applications for a gold loan, lenders do not ask you for your income proof as a gold loan is a secured loan, secured against gold that you must pledge to avail the loan. 

Zero impact on low credit history

In most credit options, banks grant loan proceeds based on your credit history and repayment potential. However, this is not the scene for gold loans. As gold is utilised as collateral or security, lenders are guaranteed regarding the repayment of principal constituents and thus do not depend on your past credit record before providing you with the loan. 

Security of your physical gold

The responsibility to safely maintain your physical gold is of your lender. It is kept normally safe in a bank or financial institution’s vault and thus, you as a borrower do not require worry regarding the same. Once you repay the gold loan on time and in full, the gold that you pledged is returned to you by the financial institution. 

Ending note

Gold loan is simple to avail but you as a borrower must ensure that you repay the loan in full and on time, failing which gold might be used by the bank to retrieve the amount given to you as a loan. You can take a gold loan from any financial institution of your choice as the disbursement procedure is usually easy and quick. 

Frequently asked questions (FAQs)

What are the advantages of availing a gold loan?

A few important benefits of availing a gold loan are – 

·       Distinct loan repayment choices

·       High LTV ratio

·       Flexible loan repayment tenures

·       No or low foreclosure fees

·       Minimal documentation

·       Reasonable rate of interest and minimal processing charges

Is availing a gold loan option looked upon as safe?

Gold loan is looked upon as a safe option. Physical gold might not yield high value, or it might be less, however, with a gold loan you as a borrower can make good use of the loan proceeds to meet your distinct expenses. 

Which bank is considered a good option for availing gold loan?

State Bank of India and other public sector banks may be opted for to avail a gold loan as the interest rate offered by such financial institutions are lower than private sector banks and digital lenders. 

Is a gold loan a better option than a personal loan?

Yes, a gold loan can come across as a better choice than a personal loan if you as a borrower tend to repay the loan proceeds in a shorter time span. Also, these are known to come with a lower rate of interest. In contrast, a personal loan is looked upon as a preferred option by those borrowers looking for a higher repayment tenure and higher loan proceeds. Based on your financial needs and individual requirements, you as a borrower can select between the options available to you.

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