The Ultimate Guide to Gold Loan

In India, pledging gold to obtain a loan has become commonplace. People pledge their gold jewelry to NBFCs or banks in order to receive money quickly. Nowadays, getting a loan against gold is simple and painless. It is possible to apply for it online by following a few simple procedures. However, like with any loan, full awareness is required prior to entering into a financial agreement. So, in this article, we'll dissect the nitty-gritty of the gold loan so that you can make an informed decision while looking for one.

What kind of people are eligible for a gold loan?

To be qualified for a gold loan, you must meet the following requirements:

 Working as a Salaried,  Self-Employed Professional, Businessman, Farmer, or Trader, for example.

 Age limit: To qualify for a gold loan, you must be between the ages of 18 and 60.

To apply for gold loans, what documents do I need?

When compared to other types of borrowing, gold loans involve the least amount of paperwork. You'll need a few basic documentation for these types of loans, which are listed below:

 Proof of Identity (any of the following):

 Aadhaar card PAN card

 Proof of current address which is your Aadhaar card or PAN.

What kind of gold do you need to put down as a deposit?

The gold loan firms or financial institutions will only accept jewellery-grade gold. Coins/Bars/biscuits/utensils or any other kind of gold are not accepted. Also, keep in mind that the higher the purity of gold, the higher the value and loan amount. The gold purity should be between 18 and 22 karats or higher. If the jewellery you're pledging contains jewels or stones, they won't be valued; just the gold value will be taken into account.

What are the gold loan interest rates?

Because gold loans are secured by your gold assets, the interest rate paid on them is significantly lower. 

When it comes to gold loans, how long do they last?

The term of a gold loan is six months, and it can be renewed without fee for another six months. Because gold loans have such a short term, you must be certain that you will be able to repay the loan on time. If you do not refund your pledged gold within the specified time, you risk losing it.

How much money can I borrow?

After determining the weight and purity of your gold, lenders determine the loan amount. They calculate the 'Loan to Value Ratio,' also known as the 'Loan to Value Ratio.' The majority of lenders give loans of up to 75%-775% of the market value of the pledged gold. Furthermore, the RBI has set a loan-to-value (LTV) ratio of 75 percent for gold loans and has mandated all financial institutions and gold loan NBFCs to lend at this LTV ratio. For example, if the value of your gold is Rs 1 lakh, the maximum loan amount a lender can grant you is Rs 75,000.

 How long does it take to get a gold loan approved?

 The application process for gold is quick and easy. You can acquire your loan in a day if you have all of the required paperwork and meet the lender's eligibility requirements.

 What is the easiest way to repay a gold loan?

In gold loans, debtors are offered numerous repayment choices. There are four repayment alternatives to repay the borrowed amount. These are listed below:

 Regular EMIs: This option allows borrowers to pay off their loan in manageable monthly installments that include both interest and principle.

 Borrowers can return the interest as well as the principal amount in this option, depending on their convenience and affordability. This strategy will enable them to save a significant amount of money in interest.

 Only interest EMI: With this strategy, borrowers can choose to pay only interest during the loan term and pay off the entire principal amount when the loan expires at the end of the term.

Bullet repayment: As per this repayment structure, borrowers need to repay the complete loan amount along with the interest as well as the principal amount at the conclusion of the loan period only.

If you need a gold loan, should you go to a bank or NBFC?

You may find it tough to decide whether to take out a gold loan from a bank or an NBFC because they both provide loans. It all relies on your expectations and needs. If you want characteristics like repayment flexibility or cash against gold in a short period of time, Fintech is a good choice. As per RBI restrictions, NBFCs can only distribute gold loans up to Rs 20,000 in cash.

Because banks normally have a rigorous paperwork process, loan disbursement takes a long time. Second, banks do not pay cash for the loans they have approved. The entire loan amount is transferred to the borrower's bank account, either via check, account transfer, or NEFT/RTGS, depending on the borrower's preference. When you only need a modest quantity of money, the cash alternative is ideal. 

When asking for a gold loan, there are a few things you should keep in mind.

Compare several lenders and find the best deal- Not all lenders have the same product features. As a result, attempt to find a lender with a cheap interest rate.

Check the lender's credibility- Because you're entrusting them with your gold, only use reputable lenders or NBFCs to get a gold loan.

 Check the cost of your loan- Before taking out a gold loan, make sure to check all of the essential costs, such as the processing fee, prepayment penalty, or any other hidden fees, to avoid a nasty surprise later on.

 Examine all of the charges and terms, not simply the loan amount or the EMI cost. Also, analyze the entire cost of your loan and choose the best option based on your needs.

 Don't forget to calculate the gold loan EMI thoroughly—failing to calculate your gold loan EMIs ahead of time will end up costing you more money. Before taking out a gold loan, you should always consult an EMI calculator. It will assist you in determining whether or not you can afford the loan.

 Do not seek a larger loan than is necessary- If you apply for a loan for a larger amount than you qualify for, your application may be rejected. So, before taking out a gold loan, make sure you're eligible first. If you do not apply, you risk losing your gold assets that you have pledged to your lender if you do not repay on time.