India has always been one of the biggest consumers of gold worldwide. The most common reason for purchasing gold is for investment rather than using it as jewellery or ornaments. Moreover, gold is a fantastic investment, especially in the face of inflation. Investments are made in gold mutual funds and shares, ETFs, coins and biscuits, and jewellery made of gold. It makes an excellent resource for quick loans during times of necessity. In fact, it is one of the fastest ways to get money due to the simple requirements for gold loans. A person can obtain gold loans without difficulty even if they have a bad credit score but have a sizable amount of gold in their safe.
What is a gold loan?
Borrowing money against one’s gold is known as a “gold loan”. Borrowers can avail a secured loan from a financial institution in exchange for their gold jewellery, gold coins and bars. The borrower will be granted a loan amount, which will ideally represent a certain proportion of the gold’s market worth. The borrower can repay this sum to the lender through monthly instalments, bullet payments and part payments. After they have paid all the instalments in full and in a timely manner, the gold is given back to the borrower. There are no limits on the final use of gold loans, in contrast to other secured loans like vehicle loans and home loans. Therefore, getting a gold loan would be a terrific option to fulfil an urgent need for money, whether it be for a family trip, a wedding, education expenses, or a medical emergency.
Gold Loans, Online Gold Loans, Doorstep gold Loans, etc are variants of the same concept of pledging gold articles in lieu of funds.
Customers today have a lot of confusion about gold loans, which includes having present expectations. However, the reality of these loans, including gold loans at home, is pretty different. Let’s elucidate: –
Expectation #1: Lenders of gold loans impose high-interest rates!
- Reality: Before even approaching lenders, browsing online or getting a gold loan at home, borrowers are dissuaded by those around them on the pretext that gold loans levy high-interest rates. Honestly, that’s not the case. Most loan lenders of this jewel offer reasonable interest rates, with some being competitive in comparison to unsecured credit. The yearly rates are 11–17% plus a processing fee of 1%–2%, however, it varies from one lender to another. NBFCs charge between 15 to 26 per cent even if their loan to value ratio is lower (the amount that the lender is willing to release against the value of the pledged gold). Therefore, by promising their gold, borrowers can obtain a large amount through the loan.
Expectation #2: Availing the service of a gold loan at home from an NBFC is a hectic and time-consuming process!
- Reality: On the other hand, the only loan you can obtain immediately is a gold loan. If the bank or NBFC you’re applying should be satisfied with the purity of the gold you’re guaranteeing and your paperwork is legitimate, you will get a loan approval and have the money in your account the same day. It’s one of the easiest methods to get money without selling your assets.
Expectation #3: The gold could be misplaced or swapped!
- Reality: Some individuals think that there is a good chance the gold will be traded, lost, or sold once it has been pledged. That, however, is a misconception. The asset that the borrower presents in exchange for a gold loan will be kept in safekeeping. Gold loan lenders adhere to tight security procedures to make sure that the pledged valuables are not utilised for nefarious purposes or sold at auction without the borrower’s permission.
Additionally, some lenders of gold loans provide services in which their representatives personally go to the borrower’s registered address to collect the debt. They also have a karat metre for measuring the purity of gold to confirm the asset’s quality. Lastly, to avoid any unforeseen incidents, it’s strongly advised that borrowers only engage with government-approved financial institutions like banks or NBFCs.
Expectation #4: Gold heirlooms or antique jewellery are not eligible for gold loans!
- Reality: Any gold jewellery of 18 carats and above qualifies for gold loans. Banks and NBFCs have a set of norms for gold items to qualify for a loan. However, people believe that old gold might not meet the standard of current gold. However, antiques or exquisite jewellery offer extra loans as their valuation increases with time.
Expectation #5: Gold loans are only offered by banks!
- Reality: Gold loans are also issued by both traditional banks and non-banking financial institutions (NBFCs).
Initially, jewellers were the primary source of gold loans. Later, when banks and NBFCs developed, they occupied a key position in the gold lending market. Legal obligations do not apply to gold loans obtained from jewellers or anybody else. Therefore, there is no regulating agency to handle the matter in the event of a disagreement over repayment or the amount of the gold loan. Borrowers can report fraud or loss to NBFCs and banks, however, and get a correct settlement by going to court or through a government agency. They have to abide by the law since they are registered entities
Gold has grown from a luxury commodity to a great investment option. It is an essential component of any emergency fund, for both corporations and individuals. Obtaining gold loans from banks wasn’t common a few decades ago. The demand soared in 2019. The ensuing pandemic is another factor contributing to the strengthening gold loan market. Fortunately, the application process for gold loans has been reformed by banks and other financial institutions. In an emergency, people now apply for gold loans rather than any other unsecured loan for various reasons and can avail of the facilities like doorstep gold loan services, online gold loan calculators for calculating Monthly Interest Payments, flexible and online repayments and no credit checks.
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