Important Things to Understand About a Gold Loan before Applying for It
A gold loan is also known as a loan against gold. It is secured in nature. You have to submit the gold jewelry (on which the fund is approved) to the lending institute until you repay the loan. This loan is sometimes provided in as less as 45 minutes, after loan approval and evaluation of the gold. You can utilize the borrowed amount for any financial requirement or an urgent cash need. Gold coins/biscuits/bars are not usually accepted by banks and NBFCs, but ornaments are. Before choosing a gold loan, you must be aware of certain factors and conditions.
Today we will discuss the things you should know before availing a loan against gold.
Features of Gold Loan You Should Be Aware About
Let us now elucidate certain gold loan features that you should be aware about.
- The loan amount is between Rs. 50 thousand and Rs. 50 lakhs.
- The tenure of loans against gold is up to 2 years, and in some cases, up to 3 years.
- The lowest interest rate is 10.50% and up to 13.50% or more.
- Some lending institutes may exempt the prepayment penalty, while others do not charge one at all.
- You can receive up to 75 percent of the gold’s value.
- Gold that you own, would be the only gold considered for loan.
- The amount of loan will be determined on the purity and weight of the gold in the jewellery.
- The gold value is judged as per the current market price.
- The bank or NBFC will offer free security for your gold ornaments.
- Various fees could be applicable on a loan against gold, and these could be related to processing of the loan, late payment charges, penalty on non-payment of the interest, valuation fees, etc.
Things You Do Not Need for a Gold Loan
Let us concentrate on things that you would not have to worry about when applying for a gold loan.
- The approval of the loan does not depend on your income or credit history. Thus, it is unlikely that your income, profession, or credit score will be taken into account to sanction the loan. However, the financial institution may want to check on these aspects, if the loan amount is too high.
- You do not have to produce documents such as salary slips, income tax returns, bank statements, etc. Only basic documentation is needed, such as address and identity proof, and some other essentials.
- The loan has a short tenure of up to 2 or 3 years, thus you do not have to incur interest payment for a longer tenure.
- Even housewives and temporarily unemployed individuals can apply for loans against gold. However, a person drawing a regular income would be preferred, but it is not necessary.
Things You Need to Know About Gold Loan
Now that you understand what is exempted from gold loans, you need to know what the necessary aspects of the loan are.
- The gold jewelry is the collateral with the bank. This gold ornament for collateral would be the same against which the loan is granted.
- You have to personally visit the bank or lending institution to get the gold ornaments evaluated. Do remember that precious stones or metals other than gold in the jewelry will not be considered to calculate the loan amount, but only the gold content would be considered for valuation. The valuation process is hassle-free and quick.
- Disbursal is done the same-day, the one when you submit all the necessary documents, get gold valuation done, and complete the loan procedure from your end. Thus time taken for disbursal depends on how soon you complete this requirement.
- Select the repayment option as suitable. You will be given the option of paying only the interest amount till the tenure, and the remaining principal amount after the end of the tenure. You can also choose the regular repayment option, which includes monthly EMI (payment of interest and principal amount). You can even get the option of paying the interest amount in lump-sum and then repay the principal amount at the end of the tenure.
Special Considerations on a Gold Loan
There are instances when certain discounts and special considerations could be made for a loan against gold. We have listed these considerations below.
- Banks or NBFCs may provide a discounted interest rate in India, in case the borrower is prepared to pay interest portion at one go or in lump-sum. The rebate can be up to 2 percent on the standard rate of interest.
- Women customers and farmers can be at an advantage of availing discounted rate of interest on gold loan.
- Special gold schemes are available by government for small and medium sizes businesses.
- Gold overdraft loan as a facility could be available with banks. Here the loan is disbursed against gold ornaments that are invested in the bank. The same jewelry can be pledged instead of other gold ornaments. You can withdraw the funds with ATM card. You must, however, have at least one gold overdraft account at the particular bank.
By considering the above-mentioned factors and things to know about gold loan, you can now easily apply for a loan against gold by taking an informed decision.