Did you know that India is one of the largest consumers of gold in the world? The demand for gold has increased by over 804% from 1987 until 2016.
According to a report by the World Gold Council, the total demand for gold stands at 168 tonnes during a single quarter of 2024. This article will look at everything about a gold loan, from how to avail one to what the benefits are.
Indian households are known to possess an age-old wealth of gold.
Earlier, gold was considered a worthwhile investment that was used to rescue people in times of need. Gold still carries that value and worth. It can be used as collateral to get cash for long or short-term goals; this is what a gold loan is all about.
In this complete guide, we’ll discuss everything you need to know about getting a gold loan. We’ll cover topics such as what is a gold loan, factors to consider while applying for a gold loan, documents required, and eligibility criteria for availing one and more.
By the end of this guide, you will have all the required knowledge to avail a gold loan easily. So, let’s get started!
What is a gold loan?
Contemporary banks and financial institutions have evolved and become game-changers for people and businesses. Gold has always served as a benchmark of financial prosperity and financial health. A gold loan is a type of secured loan taken by customers who need cash on an immediate basis.
Where does gold come into the picture? Simple. Gold acts as collateral for people looking to avail a gold loan. The banks or non-banking financial institutions keep this gold safely and securely and give funds to the borrower. Hence, the banks or the NBFCs become the lender and the customers/ people who avail a gold loan become the borrower.
IIFL Finance is a leading lender in the gold loan market. So check their website now. Click on the link to learn more.
Gold loans are generally preferred over personal loans since they offer a lower interest rate than personal loans.
Factors to Consider when Applying for a Gold Loan
Just because a gold loan gives a lower interest rate does not mean you can or should mindlessly apply for a gold loan. Keep in mind the factors to consider when applying for a gold loan
The gold loan tenure is a major factor in determining the repayment ability and the time period. Also, you know best about your repayment capacity, so knowing the gold loan tenure is a must.
Gold loans can be availed from banks and NBFCs. As banks are trustworthy sources, their credibility is known very well. As for NBFCs and other financial institutions, it is essential to do a background check and verification before taking a gold loan from them. Losing your gold or money is the last thing you would want.
Rate of Interest
This is yet another vital factor before applying for a gold loan. Since interest rates on gold loans are lower than those on personal loans, a gold loan is preferred more. But, even among the banks and NBFCs offering a gold loan, the interest rate varies. Therefore, you should survey the market before choosing a lender.
Now, this is an essential factor. It is impossible to avail a gold loan at 100% value of the gold. Gold loan lenders generally offer a 75% valuation of your gold, which is the amount provided to you with your gold as collateral.
The Repayment Process
When applying for a gold loan, you must remember that there is an EMI-Equated Monthly Installments that you must pay monthly. When the loan tenure is over, and all remaining dues have been paid to the bank/NBFCs; the gold, which was offered as collateral/security, is returned to the borrower.
Documents Required for a Gold Loan
When applying for a gold loan, the only documents required are identity and address proof. The officially valid documents are
Proof of Identity
- Aadhaar card
- Driving license issued by the government
- Voter ID card
- NREGA job card, if there is one
Proof of Address
The same documents as above. Additionally, a letter issued by the National Population Register would also do. If the address has not been updated in the above documents, then the following can be used as proof of address.
- Utility bills-electricity, water etc
- Property tax receipt
- Pension document
- Letter of allotment of accommodation for employers of state government, central government and PSUs.
Eligibility for a Gold Loan
The process of checking eligibility for a gold loan is hassle-free and easy. Irrespective of your work status, you can avail a gold loan provided you have sufficient gold assets in the form of gold coins, jewellery, biscuits etc., depending on the bank or financial institution.
Besides having gold as an asset, the gold must be pure. The purity of gold is a significant factor in deciding if you’re eligible for a gold loan.
The purity of gold has different standards for different banks and NBFCs. But the generally accepted purity is 22K.
We hope that you are clear with everything regarding a gold loan. It is an easy process, and the myth that it’s time taking and complicated is entirely false. Availing a gold loan is, in fact, one of the fastest ways of getting your funds in a timely manner without worrying much about anything.
A gold loan is hands down one of the best loans out there, and the repayment depends entirely on the lender. EMI is generally an easy way of repaying the gold amount; this EMI includes both the principal and interest on your gold loan.
Also, remember that if you’re unable to repay within the grace period, you will be considered a defaulter and defaulting on gold can lead you to lose your gold forever.