It is widely known that Indians have a voracious appetite for gold. This can be concluded from the fact that Indian households have hoarded gold which is worth a whopping 800 billion dollars. Incidentally, gold is not just a favoured investment destination for Indians but it is also a highly used form of collateral to avail funds.
Gold loans or cash for gold have been among the most popular forms of loans in India. This is evident from the fact that India’s gold loan market, which is growing at a scorching pace of 13% to 14% per annum, is forecasted to be worth more than Rs 4600 billion by 2022.
What is a Loan Against Gold?
A Gold Loan, also known as a Loan Against Gold, is a type of secured loan. In this, a borrower pledges gold with a lender and the latter offers a loan. The amount of the loan is equivalent to 75% of the verified value of the gold.
Financial institutions offer gold loans at affordable rates. The annual interest rate of a gold loan varies lender to lender in addition to the loan value with varied lender to lender in addition to the loan value. A borrower can also apply for a gold loan to meet a short-term money requirement such as child’s education, medical treatment or surgery, family vacation, a wedding in the family, etc. Instead of selling one’s jewellery, which could have emotional value, it is highly recommended that one rather avails a gold loan.
Gold Loan Tenure
Gold loans are generally short tenure loans and rarely long term. Most lenders or financial institutions give gold loans for a period of 1 year or so and some may extend it up to 2 or 3 years as well. So, before taking a loan against gold, you must be sure of repaying it in the given tenure.
Safety of the gold
Gold loans are now managed by professional institutions that keep the jewellery safe in strong vaults that are guarded by CCTV cameras 24*7. Some lenders even insure the gold pledged to them, protecting it against theft. In case of an armed robbery, you will get back an amount that will be equal to the market value of the gold deposited.
Who can apply?
Any man or woman who is 18 years old or above can apply for a loan against gold, as long as they have a gold asset to deposit. Specificities regarding professions are not a prerequisite for gold loan. Farmers can also get a gold loan for farm credit, agriculture infrastructure, and other important activities related to farming. You will also need an identity proof (PAN and Aadhaar card copy), one address proof (electricity bill, ration card, passport, or telephone bill) and one signature proof (passport copy, driver’s license etc). Also, carry two passport-sized photographs.
The loan period is usually 3-12 months. Normally the period of repayment should not exceed two and a half years, and another thing to keep in mind is that the loan must be repaid usually within 30 months but it normally depends on the lender. Some would even grant the option to renew the gold loan to stretch the tenure.
Benefits of Loan Against Gold
Taking a loan against gold has many benefits:
- It is fast and easy to process.
- You are not asked to show any income proof or credit card history; you only need a gold asset to pledge.
- You only need to produce a few documents and the process is quite simple.
- Gold loan is offered at a lower interest rate compared to unsecured loans such as personal loans.
- Most lenders ask for zero processing fees on gold loans. However, in rare cases, even if the lender takes charges for processing, it is usually very low.
- Most of the loans require your credit score, however, in the case of gold loan, the approval does not depend on your credit score.
Keeping all the above points in mind, it is very obvious that if you have any gold asset, opting for a Gold Loan in times where you need urgent money is better than any other loan available in the market. The only thing to check is whether or not you can pay back the amount to get your gold back.