Gold Loan: How does a gold loan work?

5 Aug 2022  Read 182 Views

What one must know about Gold Loan? 

A gold loan is a secured loan where the borrower continues their Gold, starting from 18k to 24k, with a Bank or a Monetary Institution as protection and avails capital against it. In comparative phrases, a gold loan may be understood as a similar idea to a loan where the proprietor keeps their house or belongings as a Mortgage with the financial institution and takes a loan in return to meet their want for capital. India has been among the biggest purchasers of gold in the world for years. 

While gold is generally sold for utilization as embellishments, the most common reason for purchase is for funding. Gold is an awesome fund, and in times of need, Gold acts as a really perfect aid for instant loans. In truth, owing to smooth gold loan eligibility, it may be the quickest way to get the right way of entry to funds. Even if someone has a low credit rating but a great quantity of gold mendacity in their locker, they can get gold loans without any trouble.

How precise are Gold Loans?

Gold loans are loans that are taken against gold. It is a secured loan that borrowers take from a financial institution in exchange for gold. The loan amount will be sanctioned towards the borrower and can ideally be a percentage that is particular to the value of the gold. 

The borrower can repay this sum to your lender through Monthly payments, Bullet payments, and Part Payments. The gold is returned to the borrower after paying all the installments in full and on time.  Unlike other popular secured personal loans like a car loan or home loan, there is no sort of restrictions on the end-use of gold loans. Hence, it doesn't matter if a person needs funds for – a family vacation, wedding, their child’s education, or a medical emergency, taking on a gold loan will be a terrific way to meet a rapid monetary requirement.

How Does Gold Loans Work?

A gold loan is among the banks' profitable loans as banks are free from the worry of non-performing assets (NPAs). The reason being the jewelry that will be taken as collateral remains utilized by the bank even when the borrower defaults regarding the payment of these monthly installments (EMIs) to their loan. These are how a gold loan works are:

  • Checking the product quality: When a customer approaches an institution that is financing a gold loan, step one is for the institution to examine the purity associated with gold jewelry; this is certainly considered as collateral along with the determination of the value of the jewelry.

  • Know Your Customer (KYC): Know your customer norms and checks, as previously mentioned by the Reserve Bank of India (RBI) are performed because of the bank, where the bank gets to know their customer’s details such as identity, credit score, the requirement for applying for that loan as well as other details crucial in granting the mortgage.

  • Approval of gold loan: Once the quality and value of jewelry are set, and the KYC procedure is complete, the loan terms are agreed upon by both the standard bank and the buyer. Upon agreement, the loan is approved.

Who can apply for a gold loan?

Those who have gold could get a gold loan. Unlike signature loans, such as stringent eligibility criteria, gold loans may be availed by any resident that is Indian, which could include salaried professionals, businessmen, housewives, and farmers. You don’t even need to have a good credit rating to become entitled to a gold loan. So if you have a low credit rating, you've kept being able to get funds, provided you have enough gold to pledge for it.

What is the rate of interest on which lenders provide the gold loan?

A gold loan is a secured loan; therefore, its interest rate is lower in comparison to unsecured loans such for instance personal loans. The interest rates levied on the gold loan varies from one single lender to another and depends on various factors such as gold loan tenure, loan amount, etc. Moreover, it depends on where the gold is taken by your loan – a bank or an NBFC. Banks usually charge lower gold loan interest rates than NBFCs. Therefore, if you are planning to apply for a gold loan, try not to accept the very first offer you get. Compare gold loan offers from at least two to three lending institutions and create your choice.

What's the gold loan tenure?

The prepayment of gold or period loan tenure varies from one lending institution to another. It usually ranges from 3 to 12 months. Depending on the case, some lenders even offer an extended tenure or allow you to renew it to extend the tenure. Considering that the tenure regarding the gold loan is shorter in comparison to other forms of loan, be sure you repay the loan amount on time. 

What are the advantages of taking a gold loan?

A gold loan is similar to an unsecured loan in meeting your immediate financial requirements, be it an international education, marriage expenses, covering medical emergencies or any other personal use.

  • Quick Disbursal- Minimum documentation contributes to the faster processing of gold loans because of its secured nature.

  • The flexibility of good use- Since there is No monitoring of the end user, it gives you the flexibility to make use of the mortgage for any form of expense.

  • Secured Loan Type- You are not required to submit any security/collateral to the lender other than the pledged gold ornaments.

Gold Reserves in our country 

A gold reserve held by a national central bank, intended mainly as a Guarantee to redeem promises to cover depositors, note holders, or trading peers throughout the era associated with gold standard. The Gold reserve by  India this year is 754.1 Gold holdings in tons &  6.9% Gold share of reserves.

Top 10 Countries utilizing the Largest Gold Reserves (in tons)

                  Countries

            Gold Reserve(in tons)

                  United States

                        8,133

                  Germany

                        3,359

                  Italy 

                        2,452

                  France

                        2,436

                  Russia

                        2,299

                  China

                        1,948

                  Switzerland 

                        1,040

                  Japan

                          846

                  India

                          754

                  Netherland

                          612


Conclusion 

Gold continues to be the most preferred many Indian households still look at the long run, gold offers more opportunities for availing the loan. It is fair to summarize that availing loans against gold assets is a far more profitable option than availing personal loans. as gold loans focus on many different needs. Funds raised through gold loans can be efficiently used to pay back some high-cost liabilities such as bank card outstanding Money that is raised in Medical Emergencies or investing in a young child's education; gold loans could be the best instruments in helping individuals facing a credit problem. Even business entities can raise gold loans and sign up for a facility that overdrafts their gold assets to serve their working capital.

About the Author: Shivam Pathak | 5 Post(s)

Shivam is pursuing a BA. LL. B (HONS.) 5-year integrated course from Amity University, Raipur, Chhattisgarh. With a core interest in Criminal and Civil Law, his hobbies are reading books and listening to songs in his free time.

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