Gold loans are a swift and convenient option for those needing funds. Because gold is used as collateral, they are approved quickly.
The funds can be utilized for any purpose, making them a versatile financial solution. However, some crucial factors should be considered before a gold loan.
Using gold as collateral for loans is deeply rooted in our country’s history. In the past, individuals would entrust their gold to private moneylenders in exchange for loans.
Today, banks have adopted this tradition and readily offer loans against gold during their working days.
Gold loans are not contingent on factors like credit score and financial ability to repay. Some banks even sanction gold loans in as little as 45 minutes, making it the most accessible loan option.
Gold loans offer unparalleled flexibility, unlike other loan types earmarked for specific needs such as home, education, or vehicle.
The interest rates on gold loans are generally lower than those of other loan types, making them a cost-effective option.
It’s crucial to compare offers from different banks and non-banking financial companies (NBFCs) before selecting a gold loan that best suits your needs.
The amount of the loan sanctioned depends on the purity of the gold. Banks usually loan up to 70% of the gold’s value.
The purity of gold must be between 18 and 24 carats, and the loan amount is based on the price of gold. Applicants are required to provide their PAN card and Aadhaar card as personal proof.
Repayment of gold loans can be done through Equated Monthly Installments (EMIs) or in a lump sum at the time of maturity. Some banks also offer an overdraft facility for gold loans.
There are no charges for prepayment of gold loans, and some lending institutions allow a part of the gold given as collateral to be taken back if a fixed amount is paid.
In a payment default, the bank gives a notice and then auctions the gold. It’s essential to choose a loan company that provides enough time to pay off the dues in case of financial difficulty.
It’s crucial to ensure that the bank or financial institution storing the pledged gold complies with RBI regulations and rules to keep it safe. This includes having insurance and secure systems to prevent theft or other unfortunate incidents.
Recent RBI findings have highlighted flaws in the practices of some loan companies, such as the use of third parties to issue loans and the lack of transparency during jewelry auctions in case of loan defaults.
To avoid potential losses, choosing financial institutions that strictly follow the Reserve Bank of India guidelines is advisable.