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People in India are known for their love of gold by all other nations. Indians have the habit of purchasing gold ornaments and coins. The value inside gold products serves various purposes such as ornamentation, a symbol of status, and a resource for money. This innate value of gold can come of great help in times of financial need through gold loans.
Hence, banks and NBFCs offer monetary loans against gold and help people meet their needs. Usually, gold loans can be used for a variety of purposes. So, let us look deeply into what a gold loan is and the benefits it has to offer.
Purpose:
The most significant aspect of gold resources is the value that keeps increasing every day. Hence, people buy gold as a form of investment that will provide them financial stability with its increasing value. The purpose of loans against gold is to bring out the value of the metal in times of financial shortage.
Now, when you apply for a gold loan, you agree to pledge gold products as a form of collateral for the money to be borrowed. You are expected to pay the interest and repay the principal amount like any other loan scheme. If failed to repay the funds, the gold resources will be repossessed by the bank or NBFC.
Usually, the funds borrowed from banks as the gold loan can be flexibly used for any need. They are commonly taken as instant loans for education, ceremony, medical expenses, and travel purposes.
Benefits:
Opting for a gold loan is one of the safest options for borrowing money. In addition, there are numerous benefits of taking such a form of a loan. So, let us look at some of its advantages.
Fast processing speed: Gold is a form of physical collateral, making it easier for banks to process the loan quickly. In addition, it is safe for banks to accept gold resources as collateral as they can quickly sell them off if there is a default in the borrower's repayment.
Availability of easy interest-only options: Borrowers are allowed to pay only the interest of the loan amount during the entire tenure. You can repay the principal amount whenever you want to before the end of the term.
Minimum interest: Gold loans are a type of secured loan. Hence, they will cost you less interest than other types of loans. A typical gold loan will cost around a 12% interest rate.
Less processing fee: As the gold loan is an instantaneous sanction, banks and NBFCs will not charge any processing fee for the loan. It is a significant advantage of gold as collateral.
High security: Banks and NBFCs offer collaterals absolute security by storing them in their vaults and lockers. It thus encourages borrowers to trust lenders in taking a gold loan.
No eligibility based on income: As gold resources are pledged as collateral, lenders do not usually ask you for proof of income and the capacity of your repayment method.
No credit history verification: Unlike other loans where banks check the credit history of your account, gold loans do not need the score of your credit history or your ability to repay the amount.
No prepayment charge: Gold loans do not require you to pay any prepayment charges for the transaction. However, some banks may ask you about 1% of the loan amount as a foreclosure charge.
Key factors to remember while applying for gold loans:
Before you opt for a gold loan, you need to consider some points to compare different loan schemes offered by various banks. Then, based on the analysis, you need to select the ideal loan scheme that best suits your need.
Interest rate: Gold loans commonly have a lower interest rate than other types of loans. Therefore, it is better to opt for the loan of a bank that charges the least interest rate, among others - for instance, SBI gold loan charges about 7.30-7.50% per annum.
Maximum loan amount: Various banks offer relatively more loan amounts. If you require a larger sum of money, it is ideal to look out for a bank that gives a huge amount rather than borrowing from multiple banks. For instance, Axis bank has a limit of Rs. 25 lakhs, while the Manappuram gold loan can fetch you a maximum of Rs. 1.5 crore.
Conclusion:
An ideal loan against gold resources in times of your financial need will render you the utmost advantages. However, opting for a loan that charges less interest and offers an extensive tenure is preferable and efficient in the daily run.