Gold Loans: Introduction, Benefits and Steps to Apply

Gold loans are a popular and convenient tool for securing funds by pledging your gold jewellery or ornaments as collateral. Today there are many banks and non-banking financial companies (NBFCs) that offer gold loans. Such loans are particularly useful for meeting various short-term financial needs due to their swift approval process.

Understanding Gold Loans

Many Indian households own gold jewellery that can be used to meet urgent expenses. A gold loan is a type of secured loan where you have to pledge your gold ornaments as collateral to the lender. The sum of money you may receive as a loan depends on the weight and value of the pledged gold. Gold loans require minimal documentation, are processed swiftly and have lower interest rates compared to unsecured loans. All these factors add to their popularity.

You can use a gold loan for almost any purpose, right from paying for the higher education of your child and completing a home improvement project to buying new equipment for business.

How Does a Gold Loan Work?

The process of obtaining a gold loan is fairly hassle-free. You basically have to pledge your gold ornaments as collateral with the lender. The lender would carefully assess the value of the goal and offer a loan value on the basis of the current market value of gold. Hence, if you are pledging a 22 kt necklace, you must first check the 22 kt gold rate today online before applying for the loan. This would give you a better understanding of the sum of money you can get as a loan. Lenders generally offer 75% of the gold's market value as a loan amount.  After the loan is approved, the lender will disburse the loan amount to your bank.

You shall have to repay the loan amount with interest in fixed instalments over a predetermined period. Alternatively, you may even repay the entire loan amount and the applicable interest at the end of the loan tenure.

Advantageous Features of Gold Loans

●        Quick And Convenient: Most lenders swiftly verify the value of gold and approve the loan within a few days or even hours. Today it is possible to apply for a gold loan online as well.

●        Minimal Documentation: You would have to submit minimal paperwork along with your loan application. Most lenders ask for:

⮚      Identity and address proof, like PAN card, Aadhaar card, voter ID and driving licence

⮚      Passport-size photographs

●        High Loan Amount: Depending on the lender, you are likely to get up to 75% of the gold’s market value as a loan.

●        No Credit Check: Lenders usually do not pay much attention to the credit score of the borrower when approving a gold loan.

●        Secure Storage: Your gold shall stay safe with the lender until you repay the loan.

●        Competitive Interest Rates: The interest rate for gold loans is usually lower than that of personal loans or credit cards.

Process to Follow When Applying for A Gold Loan

●        Select A Lender: First of all, you need to research and compare multiple lenders offering gold loans. Compare various factors like loan repayment flexibility, interest rates, processing fees and even customer reviews in order to zero in on the right lender.

●        Check Your Eligibility: Visit the website of the chosen lender and check the loan amount you would be eligible for. You can use a gold loan calculator to calculate the loan amount you will get against your gold ornament.

●        Fill Out the Application Form: If the loan amount matches your requirements, you should proceed with the loan application. A filled-out loan application has to be submitted along with a few important documents.

●        Get Your Gold Evaluated: You may schedule an appointment for gold evaluation at a local branch or opt for doorstep gold evaluation if the lender offers it. The lender will assess the purity and weight of the gold before approving the loan.

If all criteria are met, the lender shall approve the loan, and you will be provided with a loan offer, which includes the loan amount, interest rate, and repayment terms. The lender shall transfer the loan amount directly to your account after you accept the loan offer.

Author bio: The author is an experienced financial consultant. He has excellent experience in writing detailed and factual finance-related content. He has written articles about the financial industry in his blogs as well as for some other sites and magazines.