Gold Loan: Gold is a metal of global significance. From women to royalty, people have long been fascinated with wearing jewellery made of this metal. However, it also matters in the monetary system; even today, a nation’s economic health can be gauged by its gold reserves. Governments sometimes even take out loans by pledging gold as collateral. Ordinary people also often opt for gold loans. In this article, we explain how to obtain a gold loan and what factors to consider.
Purposes for which a gold loan is useful
You can avail of a gold loan for expenses such as children’s education, weddings, or medical emergencies. It is considered safer than other loan types. However, a gold loan is best when you need funds for a short period. Carefully weigh the risks before using gold as collateral for major expenses like buying a house or land.
Where to get the loan
This depends on your convenience. Banks offer gold loans at lower interest rates. In contrast, Non-Banking Financial Companies (NBFCs) charge higher interest rates but often provide larger loan amounts. Because NBFCs lend against gold, the approval process is usually faster. Nevertheless, compare interest rates across banks and NBFCs before applying. A major advantage of gold loans is that they are cheaper than unsecured loans such as personal loans, property loans, or corporate loans.
Pay attention to extra charges
Like other loans, gold loans incur processing fees, which vary between banks and NBFCs. Some financial institutions offer concessions on these fees, though GST is applicable to the processing fee. Certain banks and financial institutions also charge a valuation fee, starting at ₹250. Other associated costs may apply, such as service charges, messaging charges, and secured custody fees.
Choose a Repayment Option
Lending institutions offer various options for repaying the loan amount and interest. If you are a salaried individual with a monthly income, you can opt for EMI-based repayments. Alternatively, you have the option to make a lump-sum payment covering both the principal and interest. Banks typically offer gold loans with tenures ranging from three months to three years; the specific duration depends on your repayment capacity and schedule.
Loans Against Gold
As the name suggests, you obtain these loans against gold. You must pledge gold as collateral, with a minimum purity of 18 carats. Banks and NBFCs grant these loans against jewellery and gold coins. You can pledge gold coins weighing more than 50 grams; however, financial institutions generally do not accept gold bars as collateral.
What Happens in Case of Default?
Standard loan rules apply here as well. If you fail to repay the loan on time, the financial institution has the right to sell your pledged gold. Additionally, if the price of gold drops, you may be asked to pledge additional gold as security.