A Comprehensive Guide to Gold Loans: How They Work and Why They Are a Smart Choice
Gold loans are secured loans that borrowers take to meet their financial needs, whether short-term or long-term. The borrower typically approves these loans by thoroughly checking the gold's purity and calculating its value. With a simple process and quick disbursal, the borrower gets the loan amount within a few days. Due to these reasons, gold loans are becoming a preferred choice for most people.
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What are Gold Loans?
Gold loans are secured loans that borrowers take to meet their financial needs, whether short-term or long-term. The borrower typically approves these loans by thoroughly checking the gold's purity and calculating its value. With a simple process and quick disbursal, the borrower gets the loan amount within a few days. Due to these reasons, gold loans are becoming a preferred choice for most people.
How Do Gold Loans Work?
The process of obtaining a gold loan is quite straightforward and hassle-free. Typically, this loan works this way:
- Loan application: The borrower fills out an application for the gold loan, whether online or offline. The paperwork is minimal, and most lenders ask for documents, including ID and address proof.
- Gold inspection: The borrower's gold is checked for quality and purity.
- Gold valuation: Upon checking the purity, the current value of the gold articles the borrower is pledging is determined. Value is calculated based on today's per-gram rate of gold; the loan amount is calculated by taking the total value and the LTV. For instance, if the total value of pledged gold is 1 Lakh and the lender's LTV is 70%, then the eligible loan amount will be INR 70,000.
- Loan offer: After gold valuation, the lender offers a loan amount and the interest rate. Additionally, the borrower can ask for different gold loan schemes, having diverse terms to suit a variety of borrowers.
- Loan disbursal: Once all the verification is done and the borrower has agreed to the loan terms, they get the loan amount within a few hours.
- Repayment: Reputed loan providers offer several repayment options from which the borrower can choose at their convenience.
Why are Gold Loans a Smart Choice?
Taking a gold loan is a smart choice due to the following reasons:
- Quick disbursal
The best thing about gold loans is that they take minimal time to process, which makes them ideal for financial emergencies. Typically, the process requires minimal documentation, and the processing time is also very quick. The borrower just needs to provide their ID and address proof along with their gold ornaments, and their loan amount is disbursed within a few days.
- Competitive interest rates
Since gold loans are secured loans, they offer competitive interest rates when compared with other unsecured loans. The gold ornaments serve as the security for the loan amount, so the lender is positive that the borrower will repay the loan more promptly. Lower interest rates are beneficial because they reduce the overall principal amount.
- Easy eligibility
The eligibility criteria for gold loans are not as stringent as other types of loans, and the reason behind this is that the borrower is pledging their gold ornaments. Even if a person does not have a great credit history or income proof (in the case of homemakers), they can get the gold loan without any hassle. The borrower just needs to have gold ornaments and the required documents and should be more than 18 years old.
- Flexible repayment
One of the biggest reasons why taking a gold loan is a smart choice is because it offers repayment flexibility. One can choose if they want to repay partially, before the tenure ends, or at the end of the mandate. This allows the borrower to plan their finances at their convenience without getting financially burdened.
- Zero processing fee and foreclosure charges
Most loan providers try to keep their gold loans more borrower-friendly, unlike other types of loans that come with high processing fees. This fee increases the cost of the loan. Additionally, reputed gold loan lenders do not charge any penalty on foreclosure that may increase the borrower's total payout.
- Security of physical gold
Gold is a precious commodity, and one cannot afford to lose it. By taking a gold loan, one can rest assured that their gold ornaments will not be at risk. This is because the lender is responsible for keeping it safe once they have disbursed the loan amount. To keep the gold ornaments safe, these lenders follow a strict safety protocol by keeping them in a safe place with 24/7 CCTV surveillance.
Before taking a gold loan, one should check out the "gold rate today" to get the correct value of their gold items. Apart from this, taking a loan from a reputed bank or NBFC will ensure that the gold ornaments are safe and the borrower gets the best loan terms in the competitive market.
About the Author:
The author is a financial advisor and an avid reader. She sometimes likes to write about how to manage finances and what kind of credits can be best for the readers.
