A gold loan is a type of secured loan in which the borrower has to pledge gold as collateral for the loan amount to be borrowed. The gold that is to be pledged could be in the form of ornaments, coins, bars, etc. In other words, you can get cash for gold in this particular loan scheme. The upper limit of the amount of loan that is sanctioned is decided by a certain percentage of the value of gold pledged by the borrower.
This percentage is usually decided by the lender and hence differs from lender to lender. Loans are usually short-term loans and hence are to be repaid within a few months to a few years as per the terms and conditions of the lender. If failed to repay the loan in time, the lender has the authority to sell the gold pledged by the borrower to get the disbursed funds back. If you are wondering about getting a gold loan then there a few certain tips and advice that you should keep in mind.
1. Coins and bars offer more value
The upper limit of the amount of loan that you can sanction with the pledged gold is determined after calculating the exact value of gold. If the pledged gold is in the form of ornaments, only the value of the gold in the ornament is evaluated. Since ornaments are usually made up of various gems, stones and other metals the overall value would not add up to be as expected. Hence it would be wise to pledge gold coins and bars instead since they are pure.
2. Age restrictions
Anyone who is 18 or above and has possession of gold to pledge as collateral can apply for a gold loan without any restrictions unlike other forms of loan which require the applicant to be at least 21 years old like personal loan, business loan etc.
Since the gold loan is a form of secured loan it does not require much documentation. Only the value of gold pledged is assessed using the available metrics and some bare minimum proofs are asked for like Proof of Identity, age, and proof of address.
4. Faster approval
The approval of a loan is relatively quick as compared to the approval time for other types of loans since it does not require much documentation. This fastens the verification process. This feature makes the cash for a gold loan a suitable option to opt for at the time of financial emergencies.
5. Low-interest rates
Unlike most unsecured loans like a personal loan or a business loan which offers the loan amount at an interest rate as high as 18%-22% a year, the gold loan is a secured loan that charges an interest rate of usually around 12%-14%. Hence opting for gold finance allows you to pay less on interest as compared to other types of loan schemes available in the market.
6. No income proof
The applicant is not required to show his or her income proof or profit earned in gold finance. The gold pledged as collateral is well enough for security purpose and hence the lender do not have to scrutinize any more about the income of the individual.
7. Loan amount
As per the latest revised rule of the Reserve Bank of India, the loan-to-value ratio (LTV) cannot exceed 75%. In simpler terms, if the value of gold pledged as collateral is assessed to be Rs.10,000 then the individual can only get a loan amount of Rs7,500. This has been done keeping in mind the frequent fluctuation of the price of gold in the market.
8. Credit score
Since the gold loan is a form of secured loan which requires you to pledge gold as collateral beforehand, you can get your gold finance approved even with a mediocre credit score. Cash for a gold loan can also help you increase your credit score or CIBIL score which will help you in the future while opting for other loans.
9. Flexible repayment options
The repayment options are determined by the lender and are usually flexible. It either asks you to pay the whole amount (principal+interest) after the tenure is over or you can have the option to pay the sum in EMIs after regular intervals.
10. Go through the terms and conditions
Make sure to read the terms and conditions carefully while opting for a loan. Assess beforehand if you are capable to repay the whole amount in time since gold loans are usually short-term loans and have to be repaid in a few months to a few years as per the conditions set by the lender.