Gold has always been seen as a valuable asset, and its worth has only increased over time. Unfortunately, only a few people know about the financial advantages they can gain by unlocking the potential of their gold through gold loans. Gold loans are a quick and easy way to access funds using your gold as collateral. Recently, gold loans have become increasingly popular due to their low-interest rates ranging from 9.50% to 28% per annum, flexible repayment options, and speedy disbursal of funds. Understanding what a gold loan is can help you make an informed decision about using your gold to access funds when you need them the most.
What is a Gold Loan?
Gold loans are secured loans where a lender provides funds to a borrower in exchange for gold articles or jewelry, usually offering a gold loan amount equivalent to a percentage of the gold’s value.
Understanding the value of the pledged gold per gram and other eligibility criteria is crucial for determining the gold loan amount. To reclaim their gold objects, the borrower must repay the gold loan through installments, usually following a predetermined repayment schedule. Gold loans are an excellent option for significant events or expenses, such as weddings or unexpected costs, provided the borrower is confident in their ability to repay the loan promptly.
How Does Gold Loan Work?
Obtaining a gold loan is a relatively straightforward process. To secure a gold loan, the borrower must provide the lender with gold in the form of coins or jewelry. The loan amount can be up to 75% of the value of the gold items pledged, and any Indian citizen who owns gold articles is eligible to apply for a gold loan. An evaluator will assess the gold item’s quality and current market value once it is provided to the lender. Once the borrower agrees to the loan amount and fees, they can proceed with the documentation process.
After loan approval, the lender retains the gold, and the funds are transferred to the borrower’s bank account. The borrower must repay the loan amount along with the lender’s set interest rate ranges from 9.50% to 28% per annum to repay the loan. Gold value is more likely to increase over time than other collateral assets, making it a more attractive option for lenders.
Benefits of Gold Loan
- There is minimal paperwork, as the gold serves as collateral, and only identification and address documents are needed.
- No requirement to show proof of income.
- Significant cost savings due to lower interest rates range from 9.50% to 28% per annum on gold loans compared to personal loans.
- Instant loan processing with the quick disbursal of funds.
- The loan is secured, which means that even if you have a poor credit history, it will not impact your chances of obtaining a loan.
Documents Required for Gold Loan
Identification proof: This can include a PAN card, driving license, Aadhar card, voter ID card, or passport copy.
Address proof: This can include an Aadhar card, voter ID card, passport copy, landline bill, water bill, postpaid bill, driving license, electricity bill, or rental agreement.
Passport-sized photographs: Two recent passport-sized photos will be required for the documentation process.
What is the Impact of a Gold Loan on Your Cibil Score?
Gold loans offer borrowers more freedom to use the money, including wedding expenses, education loans, or other unanticipated medical problems. When you need money right away, applying for a gold rather than a personal loan can help you keep your CIBIL score high because gold loans have no credit score requirements. A gold loan could raise or lower your credit score, depending on your terms.
When you apply for a gold loan or any other type of credit, the lender requests your credit record from the credit bureaus, known as a “hard inquiry.” If there are too many hard inquiries on your credit in a short time, it indicates that you are in desperate need of credit. While a few hard inquiries have no impact, too many can negatively affect your credit score. Also, missing a gold loan payment will notify the credit bureaus, resulting in a lower credit score. On the other hand, your credit score will increase when you pay off your loan on time and in full, indicating your dependability and creditworthiness.
Understanding the basics of gold loans can benefit those who own gold and need quick access to funds. With minimal paperwork, no income proof required, lower interest rates than personal loans, and a secured nature, gold loan offer a great option for critical events or unexpected expenses. However, it is essential to understand what is gold loan and the terms, repayment schedule, and qualifying requirements to make an informed decision. Also, while a gold loan may not directly impact your CIBIL score, making timely repayments and avoiding multiple hard inquiries is crucial to maintain a good credit score. With the proper knowledge and understanding, the gold loan can be an effective tool to unlock the power of your gold.