Financing higher education is one of the biggest financial commitments for many families in India. With increasing tuition fees and living expenses, paying for college or professional courses can strain your savings. That's where a low-interest gold loan can help you bridge the gap without compromising your financial security.
Gold loans allow you to leverage your idle gold jewellery and get quick access to funds. Compared to other education funding options, gold loans have some unique advantages that make them beneficial for funding your education. Here are the top 5 gold loan benefits for education that you should consider:
1. Get Funds Quickly with Minimum Documentation
When applying for a traditional education loan, you have to submit your financial statements, proof of income, collateral papers, guarantor documents, and more. Typically, the whole process is tedious and may take weeks before you get the money.
Low-interest gold loan providers offer a relatively quicker approval process as gold jewellery is the collateral. Once you submit Know Your Customer (KYC) documents and the gold ornaments, the loan amount can get credited to your account within 1-2 days. This speed and convenience help meet urgent education expenses on time.
2. Lower Interest Rates Compared to Education Loans
Most banks and Non-banking Financial Companies (NBFCs) typically charge 9-14% interest on traditional education loans. The interest rate is generally lower if you opt for a low-interest gold loan and use it for educational financing. This difference of even 2-3% substantially reduces your interest repayment burden over the loan tenure.
Moreover, the interest calculation method for gold loans is simpler. Financial institutions levy education loan interest on the amount disbursed. But in gold loans, you only pay interest on the loan outstanding. So, as you repay the principal consistently, your interest costs decline.
3. Flexible Repayment Options
Education loans require you to start Equated Monthly Instalments (EMIs) after the course completion moratorium. But with a low-interest gold loan, you have flexible repayment options based on your cash flows.
You can pay interest-only EMIs during the education period and higher EMIs after getting a job. Some financial institutions even allow part-prepayments and bullet repayments of principal at maturity. This flexibility helps align the repayment to your income flow rather than rigid EMI structures.
4. High Loan-to-Value Ratio
Most financial institutions sanction education loans based on course expenses. However, they may fund only 75% of the costs and require their own contribution for the rest.
Gold loan providers offer loans up to 75% of gold value. So if your ornaments are worth ₹10 lakhs, you can get a gold loan of ₹7-8 lakhs. The high LTV ratio means you can fund a large portion of education costs against gold, with lower of your own funds needed.
5. Easy Foreclosure with Gold as Collateral
A significant risk with education loans is foreclosure due to job loss or insufficient income post-studies. If you are unable to repay, the financial institution may seize your assets or property used as collateral.
With a low-interest gold loan, if you face repayment issues, you have the option to foreclose the loan anytime by payment in gold. Once you repay the principal and interest due in gold, you can get your ornaments back. This facility protects your other assets and allows loan closure without credit impact.
How to Get the Maximum Loan Amount?
To get sizeable funds against gold, choose loan providers that offer the highest LTV ratio. Opt for a bullet repayment structure so you only service interest during the education tenure. Pick a long tenure, like 3-4 years, to reduce EMIs and interest costs. Finally, take a top-up loan to fund any additional expenses later.
You can also club loans against your own and your family's gold to increase the total loan amount. Joint loans against ancestral gold are possible at some financial institutions. However, read the terms carefully to avoid penalty on pre-closure or early repayment.
What Documents Are Required for a Gold Loan?
When applying for a low-interest gold loan, keep these documents ready:
- Photo ID proof like Aadhaar, PAN, Voter ID
- Address proof like electricity bill, Aadhaar
- Bank account statements
- Passport size photos
- Gold jewellery you wish to pledge
- Proof of gold ownership
If you are employed, the latest salary slips and bank statements will fast-track approval. Some financial institutions may also ask for Income Tax Returns (ITRs), business vintage, etc., as part of the KYC process.
How to Get the Best Gold Loan Interest Rates?
Here are some tips to avail a low-interest gold loan:
- Compare rates of leading gold loan companies, including that of NBFCs.
- Opt for loans with a monthly reducing balance structure to minimise interest costs
- Take a relatively longer tenure, like 36-48 months, for lower EMIs
- Avoid penalty clauses on foreclosure, prepayment, etc. to retain flexibility
- Check online EMI calculators to estimate interest repayment at different rates
- Maintain a good credit score (typically 750 and above) to appear creditworthy
To limit overall costs, avoid unnecessary charges such as processing fees, valuation fees, late payment penalties, etc.
Safety Tips while Availing a Gold Loan
- Get gold valued upfront to assess lending value accurately.
- Read terms regarding the auction in case of non-repayment.
- Take an inventory receipt with clear gold details after pledging.
- Make timely payments to avoid penalty and auction risk.
- Keep repayment capacity in mind while deciding loan amount and tenure.
- Avoid borrowing from unregistered money lenders offering quick gold loans.
Conclusion
Gold loans offer a quick, convenient way to fund your higher education without impacting other assets or finances. The flexible repayment structure helps align loan servicing to your cash flows post-studies. Lower interest rates compared to education loans make repayment affordable. So leverage your idle gold assets to give wings to your academic aspirations through an appropriate low-interest gold loan.
