There’s no shame in exploring your financing options; everyone needs a helping hand with their finances at some point. But there are other options for borrowing money, and you could be confused about which one to pick. Since the formalization of the lending business, organized organizations like banks and NBFCs have tried to improve the credit sector’s operations. People in India are also starting to see the vast opportunities that gold loans provide. Because of this, gold loans have surpassed personal loans in popularity. In many parts of the world, Indians are stereotyped as being particularly fond of the precious metal gold. In terms of quantity, India is a major importer of gold. Gold is highly valued for its intrinsic worth and as a possible future investment asset. However, few people realize that gold may also be used to cover unexpectedly high costs, such as those associated with healthcare, education, starting a business, buying a car, or taking a vacation.
To what extent do gold loans help?
In cases when gold is being held as collateral, the lender is responsible for ensuring the gold’s security. Borrowers don’t have to worry about losing their money because the bank will generally keep it locked up. The gold is returned to the borrower by the bank after the loan is paid back.
Lack of Relevance of Prior Credit History – Typically, a borrower’s loan amount is determined by their capacity to repay the loan, as well as their credit history. Gold loans, however, are different. When gold is pledged as collateral, the lender need not check the borrower’s credit before approving the loan because they are guaranteed to get their gold back. As the loan is collateralized by the gold the borrower pledges, the lender often does not need the borrower to provide evidence of income. Gold loans are issued instantaneously using gold stored by the bank, and hence, many banks and NBFCs do not charge any processing costs.
Gold loans are secured loans, hence the interest rate charged by banks is lower than the interest rate charged on unsecured loans like personal loans. Loans taken out against gold have interest rates between 13% and 14%. Conversely, personal loan interest rates are often about 15%. The bank would lower the interest rate on the gold loan even more for borrowers who can furnish extra collateral.
Prepayment penalties on gold loans are typically 1%, while some financial institutions do not impose any or impose only the bare minimum.
Gold loans often include a special provision that allows the borrower to pay only the interest on the loan until it is paid off. The principal can be repaid at the conclusion of the loan term or as part of the loan’s closing procedures.
Quick Processing – Gold loans are readily available from financial organizations like banks and credit unions due to the tangible nature of gold used as security. If a borrower fails on a gold loan, the bank may quickly and inexpensively recoup its losses by selling the gold. Therefore, such loans are typically made available within a few hours after application at a bank. This shortens the processing period, which is more convenient for borrowers.
