Gold Loans 101: Understand the Concept and How the Loan Works
Ravi, a renowned businessman has been suddenly facing a financial crisis. His business was operating at loss owing to the rising operating expenses. Worried about his company’s future he has been contemplating ways to arrange funds for his venture. His wife understanding Ravi’s dilemma suggests opting for a gold loan.
She explained the concept of the loan and its benefits and urged her husband to use her gold assets to get the desired funds. Mr. Ravi took his wife’s advice and applied for a gold loan. The loan fulfilled his immediate needs and, today, his business is back on track and running successfully.
Like Ravi, many of you might need funds for your personal or business-related needs. A gold loan can prove to be a viable solution, but it is important to understand the loan in detail and how it works. So, let’s understand.
Key Highlights
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What Is a Gold Loan?
A gold loan is a secured loan provided to individuals upon pledging their gold for a certain period at a specified interest rate. If you own gold assets, you can pledge them and avail a gold loan against their value. The loan can be used for any financial need that you have and repaid over the tenure that you choose.
How Do Gold Loans Work?
To understand the workings of a gold loan here are some points that you need to know:
Loan Amount
The sanctioned loan amount is calculated as a percentage of the value of the gold that you pledge. The percentage varies for lenders. Typically, several financial institutions offer loans amounting to up to 75% of the gold’s value.
The purity of the pledged gold is also considered when evaluating the loan amount that is to be sanctioned.
Gold Assets
To avail of a gold loan, you can pledge gold jewellery, coins, bullion, and even ornaments.
Interest Rate
Like other loans, gold loans also come with an interest rate which is payable over the chosen repayment tenure. You can compare the interest rate across lenders to choose the best deal.
Tenure
Gold loans are usually short-term loans meant to fund the borrower’s immediate cash requirements. The loan tenure depends on the lender, and you can choose a suitable tenure that allows affordable repayments.
Security
The lending institution provides full security to the borrower’s gold. The pledged gold stays in safe custody throughout the loan tenure. Once you repay the loan, the gold assets are released into your custody.
Here’s how the loan works:
- To apply for the loan, you should first check the eligibility criteria and ensure that you fulfil them so that the loan can be sanctioned.
- You can apply for the loan online or offline by filling out the loan application form and submitting the required documents.
- Upon submission of the gold assets to be pledged, the lender evaluates the value of the same based on the current market value of gold and the collateral’s purity. Depending on the evaluation, the maximum loan amount is determined. You can choose an amount ranging up to the maximum amount that the lender specifies.
- You also have to choose a suitable repayment tenure.
- Based on the loan amount, repayment tenure chosen, and the lender’s interest rate, the loan EMI is calculated. You have to pay this EMI over the chosen tenure to repay the loan.
- If you are unable to repay the loan, the lender can sell off the pledged gold assets to realize the outstanding loan amount.
- However, if you repay the loan fully, you get back the gold assets that you pledged.
Benefits of availing a Gold Loan
A gold loan has various benefits which makes it a popular choice among borrowers. Some of the benefits include the following:
Affordable
Since gold loans are secured loans, the interest rates are lower and pocket friendly. This results in lower EMIs allowing you to repay the loan without hurting your budget. With a gold loan, you can simply pledge the gold and get a loan against its value. You don’t have to sell your assets to get funds for your needs.
Can Be Availed for Multiple Purposes
A gold loan is a type of personal loan that can be used for multiple needs. The lender doesn’t ask the end-use of the loan making it ideal to fund the varied obligations that you might have.
Easy Availability
With the online application facility, limited documentation, and simpler eligibility parameters, you can avail a gold loan easily.
The Bottom Line
Gold loan provides a simple and easy way of raising funds for your sudden financial needs. The gold pledged is typically kept in secured rooms equipped with electronic surveillance which assures the security of your gold. Unlock the potential of your gold assets. Get a loan against them and meet your short-term financial needs.
