Gold loans are gaining popularity in India, especially as more people look to utilise their valuable assets without parting with them permanently. Banks and Non-Banking Financial Companies (NBFCs) offer gold loans as a quick and convenient way to access funds against one's gold ornaments. However, despite the advantages, several myths surrounding gold loans still deter many people from considering this option.
This blog post will demystify the top six gold loan myths from NBFCs to provide clarity and confidence to those exploring this financial avenue.
Myth 1: Only Banks Are Reliable for Gold Loans
Reality: While banks have traditionally been trusted for financial products, NBFCs are equally dependable when it comes to gold loans. Many NBFCs specialise in gold loans, focusing their resources and expertise on providing safe and transparent services. Reputed NBFCs, like Shriram Finance, are regulated by the Reserve Bank of India (RBI), which ensures they follow strict standards to protect borrowers.
Banks may have longer processes and stricter eligibility criteria, while NBFCs can offer a more straightforward and faster experience for gold loans, especially for those with limited or no credit history.
Myth 2: Gold Loans Are Only for Financially Struggling Individuals
Reality: Gold loans are often seen as an option of last resort, primarily for individuals who are in financial distress. However, this perception doesn’t hold true. Gold loans are versatile financial products that can be used by anyone, regardless of their financial standing, for various purposes. Many people take gold loans to fund business expansions, pay for weddings, invest in real estate, or handle temporary cash flow issues without liquidating other investments.
Myth 3: Taking a Gold Loan From An NBFC Means Risking the Condition of Your Gold
Reality: One of the biggest misconceptions is that taking a gold loan from an NBFC means you risk the condition of your gold articles. In reality, your gold remains in safe custody with the NBFC until the loan is repaid. Neither does the ownership transfer to the financial institution; it only serves as collateral.
The process is highly secure. NBFCs are required to follow RBI guidelines for the safekeeping of gold, which includes secure vaults, high-level security systems, and periodic audits.
Myth 4: Gold Loans From NBFCs Come with Unreasonably High Interest Rates
Reality: While it's true that different NBFCs have varied interest rates, gold loans generally offer more competitive rates than other types of secured loans. Since gold loans involve physical collateral, NBFCs are able to offer lower interest rates than unsecured loans, which are higher due to the increased risk for the financial institution. Furthermore, interest rates are influenced by the loan-to-value (LTV) ratio – the amount you borrow against the value of the gold.
By choosing an NBFC with transparent interest rate policies, you can secure a gold loan at a competitive rate that aligns with your financial goals. Plus, many NBFCs allow you to select between fixed and flexible repayment options to manage interest costs effectively.
Myth 5: Gold Loans From NBFCs Are Only for Small Amounts
Reality: Another misconception is that gold loans from NBFCs can only be availed for small sums. In reality, the loan amount is determined by the value of the gold you pledge. Many NBFCs allow borrowers to avail themselves of substantial loan amounts, making gold loans suitable for diverse financial needs, from personal expenses to business investments.
The RBI has set an LTV cap, meaning NBFCs can offer loans up to 75% of the gold’s market value. For high-purity gold, this can result in significant funding. Therefore, whether you need funds for a major project or a smaller personal expense, gold loans offer flexibility in the amount you can borrow.
Myth 6: Gold Loans From NBFCs Are a Lengthy Process
Reality: Gold loans from NBFCs are one of the fastest financial products to obtain, primarily because they require minimal paperwork and have a straightforward approval process. NBFCs usually require basic KYC documents (such as Aadhaar Card and PAN Card) and a quick evaluation of the gold. Unlike other loans that may require a detailed review of your credit score and financial history, gold loans are processed quickly.
Many NBFCs specialise in providing gold loans with almost instant approvals. In many cases, you can walk into a branch and receive the funds within a few hours. This quick turnaround makes gold loans especially useful in emergencies.
Key Points to Consider Before Taking a Gold Loan from NBFCs
If you are considering taking a gold loan, here are a few important points to keep in mind:
- Understand the Loan-to-Value (LTV) Ratio: Ensure that the LTV ratio offered by the NBFC is in line with your financial needs.
- Repayment Options: Gold loans from NBFCs come with various repayment structures. It’s beneficial to choose a structure that matches your cash flow.
- Choose a Reputable NBFC: Always check for an NBFC’s credibility, reputation, and customer service reviews before finalising.
- Consider the Loan Tenure Carefully: Ensure that you select a tenure that you can comfortably manage based on your financial goals and repayment ability.
- Check the Processing Fees and Additional Charges: Some NBFCs charge processing fees, late fees, or other additional charges. Be clear about these before signing any agreement.
Conclusion
Gold loans from NBFCs can be an excellent financial tool, providing a secure, quick, and convenient way to access funds. These loans offer flexibility, competitive interest rates, and peace of mind, as the pledged gold remains safe with the financial institution.
So, next time you consider a gold loan, remember that NBFCs can offer a reputable, reliable, and efficient service, helping you meet financial goals without liquidating your assets.
After all, why let myths prevent you from making a smart financial decision? Apply for a gold loan from Shriram Finance today for quick access to funds.
