India is one of the world’s largest gold consumers. According to the World Gold Council (WGC), India’s yearly gold consumption climbed by 804% from 1987 to 2016. And the tendency doesn’t appear to be going away anytime soon. Aside from being utilized for industrial, commercial, and investment objectives, the precious metal can also be used to obtain a loan in the event of a financial emergency.
In reality, a gold loan is one of the simplest and quickest ways to get money when you need it most. Even if you have a bad credit score but a lot of gold in your safe, a gold loan may be the best financial option for you. With gold loans’ increasing popularity year after year, it’s crucial to understand not only what it is, but also how it works, gold loan interest rates, and other relevant information.
What is a gold loan?
A gold loan, also known as a loan against gold, is a secured loan that a borrower obtains from a lender in exchange for gold jewelry or other gold items. Lenders will typically sanction a loan amount based on a proportion of the gold’s worth. You can pay it back in monthly installments and receive your gold items back.
Unlike other secured loans, such as a home or car loan, gold loans have no restrictions on how they are used. It’s a terrific method to fulfill an unexpected financial need, whether it’s for a wedding, a family trip, or your child’s schooling. Furthermore, several commercial and nationalized banks, as well as NBFCs, offer gold loans with low-interest rates.
How does gold loan works?
A gold loan is one of the most profitable loans for banks since they are not concerned about non-performing assets (NPAs). This is because the jewelry used as collateral remains with the bank even if the borrower defaults on their monthly installments (EMIs).
The following is how a gold loan works:
1. Checking the quality: When a customer applies for a gold loan, the first step is for the financial institution to evaluate the purity of the gold jewelry that will be used as collateral, as well as the value of the jewelry.
2. Know Your Customer (KYC): The bank follows the Reserve Bank of India’s (RBI) Know Your Customer (KYC) regulations and checks to learn about their customers’ identities, credit histories, the need for a loan, and other facts that are important in providing the loan.
3. Gold loan approval: Once the quality and value of the jewelry have been determined and the KYC procedure has been completed, both the financial institution and the consumer agree on the loan terms.
The loan is approved after the agreement is reached, and the funds are credited to the borrower’s account. This procedure can be finished in a matter of hours.
Gold Items That Can Be Mortgaged
There are various sorts of gold products that can be mortgaged to obtain a low-interest gold loan. The three fundamental types are as follows.
1. Gold Jewellery:
Gold in the form of jewelry is owned by the majority of Indian households. This jewelry may have been passed down through the generations or purchased recently for special occasions such as weddings and other celebrations. Gold jewelry is nearly always comprised of an alloy of other metals rather than pure gold. This is because gold is a soft metal.
Diamonds and other jewels are frequently embedded in gold jewelry, yet pure gold cannot keep these gems stably. To make your jewelry suitable for a loan, your gold loan provider will usually have a lower cutoff of 18-carat gold. The upper maximum might be 22 carats.
2. Gold Coins and Bars:
Due to the inevitability of their prices increasing over time, gold coins and bars are often purchased only as an investment. Gold coins may also be required as an offering in some religious events. Jewelers make these on order, and their owners keep them in bank lockers and other secure locations.
When it comes to gold coins and bars, loan-granting organizations’ rules might be very different. Some institutions will only lend against pure, 24-carat gold coins and bars, while others would accept any item with a purity of 18 carats or above.
3. Digital Gold:
Digital gold has been a popular form of gold investing in recent years. You can hire a business to buy gold on your behalf and store it safely for you online. You do not need to go to a jewelry store or a goldsmith; instead, a portion of the financial company’s gold holdings is assigned to you. You must first convert your digital gold into physical gold to take out a loan against it. You can request that the firm that assigned you the gold physically deliver the required amount to you. Remember that there will be fees associated with converting digital gold to gold coins or bars.
Characteristics of a Gold Loan
Indians are known around the world for their passion for gold. India is one of the world’s largest gold importers. Gold is regarded as having significant value and as a possible source of future financial appreciation. However, few people realize that gold can be used to cover any unexpected cash needs, such as medical bills, children’s schooling, business start-up, automobile down payments, and even yearly family vacations.
When a scenario arises that necessitates immediate cash, you might make use of the gold in your bank locker that has been sitting idle. Gold loans are now available from a variety of banks and non-banking financial organizations (NBFCs). When you need immediate cash, these loans might come in helpful and can be obtained in a hassle-free manner. You can acquire a loan against gold in any form, such as jewelry, gold coins, gold bars, and so on.
1. Quick Processing — Because gold loans are secured by genuine gold, banks and other lending organizations can simply give them. Lending against gold is a safer choice for banks since they can quickly sell the gold if the borrower defaults. As a result, banks typically disburse such loans within a few hours. As a result, processing times are reduced, resulting in more convenience for borrowers.
2. ‘Pay Interest Only’ Option — Gold loans frequently include a unique option that lets the borrower pay only the interest portion of the loan while repaying it. The primary component might be paid at the end of the loan term or during the loan closing process.
3. Lower Interest Rates — Because gold loans are secured loans, banks charge lower interest rates than unsecured loans like personal loans. Gold loans include interest rates ranging from 13 to 14 percent. Personal loan interest rates, on the other hand, are often around 15%. The bank lowers the interest rates on gold loans for applicants who can supply additional collateral.
4. No Processing Fees – Because gold loans are granted promptly with gold as collateral held by the bank, many banks and NBFCs do not charge any processing fees.
5. Minimal Foreclosure Fees – Some banks and lenders don’t issue prepayment fees on gold loans or charge them at a low rate of 1%.
6. No income proof is required – Most gold loan applications do not require borrowers to provide income proof because the loan is secured by the gold promised by the borrower.
7. No Negative Impact of Credit History – In most loans, the bank determines the loan amount based on the borrower’s repayment abilities and credit history. This is not the case with gold loans, though. Because gold is used as collateral, lenders are confident in the repayment of the principal component and do not base their decision on the borrower’s credit history.
8. Physical Gold Security – The lender is responsible for securely maintaining the physical gold. Borrowers do not have to worry about it because it is generally kept safe in the bank’s vault. The bank returns the gold once they have paid back the loan.
What are the Benefits of Getting a Gold Loan?
Low-interest rates, a wide range of repayment alternatives, and quick access to financing make gold loans a good choice for you.
Continue reading to learn more about the causes.
1. Low-Interest Rates
When applying for any type of gold loan, interest rates are a crucial consideration. Because a gold loan is a secured loan, it can have a cheaper interest rate than most other types of loans. Because you’ll be submitting your gold to the lender, they’ll be taking a considerably lower risk when approving your loan. And it is for this reason why interest rates are so low.
The average annual interest rate on a gold loan might range from 10% to 16 percent. In addition, if you already have an excellent relationship with your lender, your interest rates may be substantially cheaper. Because of the low-interest rates, the repayment amount is similarly minimal, putting less strain on your finances while you repay the loan.
2. Quick and simple financing
A gold loan may be the best option for you in today’s world, where everyone is in a rush and wants to receive a loan as soon as possible. You only need to visit the branch with your gold ornaments to apply for this loan, and you can get the loan amount in as little as a day. Your gold worth will be assessed by the lender, and a loan amount will be determined as a result. The authentication process will be completed after the documentation process, which is pretty simple. The loan amount will then be deposited into your account.
3. Increased Loan-to-Value Ratio
The size of the loan is the most crucial factor to consider. All of your needs can be met with a gold loan. A gold loan can provide you with a loan amount of up to 90 percent of your whole gold worth and a minimum of 65 percent. Let’s look at an example to help us comprehend. For example, if the total worth of your gold is INR 10 lakhs, you can only acquire a loan of INR 9 lakhs.
INR 6.5 lakhs will be the minimum loan amount. It is critical to check the loan to value ratio provided by your lender before applying for a loan amount. Otherwise, you may have trouble obtaining the appropriate loan amount.
4. There are up to four different payment methods to choose from.
You’ve probably heard about different credit facilities that offer flexible repayment options. However, if we must use this term to describe a single lending plan, it would be the Gold Loan scheme. When you take out a gold loan, you may be given more than one repayment option to choose from, allowing you to pay back the loan quickly.
One of the numerous reasons why people pick a gold loan is the flexibility to choose a suitable repayment arrangement based on their repayment capability. You have four repayment options: EMI, Interest Payment at Fixed Intervals (monthly/quarterly/half-yearly/yearly), Upfront Interest Payment, and Bullet Repayment.
5. End-of-life options
The loan amount obtained through the Gold Loan scheme can be used for any purpose. The purpose for which you will use this is completely up to you. You can use the money for anything: your child’s wedding, a medical emergency, a down payment on a car, business expansion, agricultural objectives, or anything else. One of the reasons for its appeal among clients is this.
6. Eligibility Requirements
Unlike other loans, the Gold loan has no specific eligibility requirements, such as income requirements, occupation type, or CIBIL score. The only qualification for a gold loan is that you have gold that you want to use as collateral. You can receive a loan if you are an adult who possesses gold and wishes to borrow money against it. That’s all there is to it. The amount of the loan will be determined solely by the worth and purity of your gold. By entering the number and weight of your gold ornament into the Gold Loan calculator, you may find out the maximum amount you can borrow against it.
7. Minimum Documentation
Another incentive to get a gold loan is the simple and little documentation required. To apply for a gold loan, you do not need to give a comprehensive list of documentation. You’ll only need some basic KYC paperwork and passport-size pictures to get started.
8. The Security of Your Gold
If you’re concerned about the safety of your gold, rest assured that it will be safe in the bank’s fully secure lockers. It will be more secure than your Low-Interestlocker. And as soon as you pay the complete due sum, your gold is returned to you. However, before deciding on the best lender for you, you should evaluate the lender’s credibility. Always choose reputable lenders after doing some research on them. These are the reasons why a Gold Loan is an excellent option for those who own gold and need money for a variety of reasons.
What are the advantages of gold loans over personal loans?
Consider the following scenario: you need money for a sudden financial emergency and have a pre-approved personal loan offer with a 14 percent interest rate. At the same time, you have a large number of gold ornaments in your home that are unused. Do you want to take out a gold loan or a personal loan?
The greatest option is to take out a gold loan. You have nothing to lose but money to gain. You can save a lot of money with a gold loan because the interest rates are cheaper than a personal loan. Aside from that, a gold loan is processed quickly and the funds are disbursed within a day.
A personal loan can take longer than a gold loan since it requires additional documents. Processing fees on gold loans are substantially cheaper than those on personal loans, allowing you to save money. Every personal loan has a lock-in period, which must be completed before pre-closing can be done. Pre-closure costs on a personal loan typically range from 1% to 5% of the outstanding principal amount. Gold loans from NBFCs, on the other hand, can be repaid at any time without penalty, which is a significant advantage over a personal loan.
You can only get a low-interest personal loan if you have a decent credit score. If you don’t have a credit score, the minimum interest rate will be 16 percent, which can quickly add up to a significant financial load, especially if you choose a long term.
If you have a terrible credit score, your chances of getting approved are slim. You can get a low-interest rate on a gold loan if you put up the gold as collateral. Furthermore, borrowers with weak credit have a lesser risk of being rejected.
How Can Gold Loans Aid in Credit Score Improvement?
As we’ve seen, taking out a gold loan has its own set of advantages. Even for people who are having trouble with their credit, a gold loan is a suitable credit product. A minimum credit score is not required: A credit score is not required because the gold loan is based on the security/collateral provided in the form of gold.
A credit score is a numerical representation of an individual’s creditworthiness, and it is required for various types of loans such as personal loans, home loans, and auto loans. Home and auto loans are both secured loans, meaning they are backed by an asset, but the assets used as collateral are not in the lender’s actual control. They are simply hypothecated (in the instance of a 2/4 wheeler) with the lender.
In the case of home loans, the lender keeps the title deed of the document. Anyone can get a gold loan as long as they have gold to pledge; a good credit score is not required. As a result, a gold loan is a more accessible type of credit. Regular Gold Loan Repayments Help Your Credit Score: Gold loans, like all other loans, are granted at a specific rate of interest and for a set period. Regular repayments are required for a gold loan, just as they are for other types of loans.
All gold loan repayments are reported to credit bureaus. As a result, being on time with your gold loan repayments is considered a positive step toward establishing a good credit score. A gold loan, which is less expensive than a personal loan, can help you enhance your credit score. Gold loans, on the other hand, should be addressed with caution.
They undoubtedly help you improve your credit score, but you should only take out this loan and pledge your gold if you are certain that you will be able to return it on time, otherwise, you risk losing your valuable item and further damaging your credit score. In comparison to a personal loan, gold loans appear to be an efficient technique of improving your credit ratings at a lesser rate of interest.
The basic line is that when taking out any type of credit, you must be prompt and responsible with your payments. Only then will you be able to obtain an excellent credit score.
Common Errors to Avoid When Applying for a Gold Loan
One of the greatest and simplest lending choices accessible today is a gold loan. Such loans enable you to obtain financial assistance quickly and easily. So, if you’re considering applying for a gold loan, proceed with caution.
Gold loans may appear to be a simple way to raise cash quickly. Whether you require immediate finances for a wedding, festival, or trip, you usually rely on the power of gold. When it comes to financial problems, gold, which is frequently held in the form of jewelry, often comes to the rescue.
You may monetize your gold holdings without actually selling them in the markets, thanks to banks and NBFCs tripping over themselves to make gold loans to Indian homeowners. However, when taking out a gold loan, many people make some basic blunders.
1. Not understanding how interest rates are calculated
Companies frequently advertise their programs to appear to have cheap interest rates. You may find yourself paying a significantly higher interest rate depending on the terms and conditions. Some companies offer a jumping interest rate, which means that your interest increases over time or if you miss a monthly interest payment. As a result, whenever possible, opt for schemes with fixed or constant interest rates. In every scenario, double-check how your interest will be computed.
2. Failure to investigate the creditor’s credibility
A gold loan is a secured loan, which means it is backed up by something (gold in this case). The creditor or lender keeps this collateral until the loan is completely paid off. If a borrower defaults, the creditor may utilize the collateral to reclaim some or all of the money the borrower initially owed. This is a great approach to give creditor security, but what about the borrower?
What if the creditor proves to be a con artist?
There is only one method to secure borrowers’ security: only trade with well-established banks and NBFCs. Even if you’re getting a terrific deal on a gold loan, avoid dealing with companies or banks that have a bad reputation in the industry.
Many costs are hidden in the ‘Terms and Conditions’ section of some financial institutions. Processing fees, foreclosure fees, late payment penalties, and auction-related fees are all examples of hidden charges. So, before signing your loan application for a gold loan, always strive to learn about all of these hidden expenses.
4. Ignoring the Agreement’s Terms and Conditions
At least 90% of clients don’t read the small-print terms and conditions, which contain various provisions for the gold loan (for that matter any loan). Instead, they will sign the document without reading it thoroughly to save time. You may have to pay additional interest as a result of this. Some gold loans may feature a growing rate of interest, meaning that after a set period, the interest rate may move to the next slab.
Trustworthy financing organizations will, of course, inform customers about gold loan options. So he or she can select the greatest option.
5. Not considering enough options
Not knowing how to apply for an LTV gold loan (loan-to-value). When applying for a gold loan, keep in mind that you will not receive the whole worth of the gold as the loan’s cost. A gold loan’s LTV ratio cannot exceed 75%, according to RBI guidelines. If the worth of your gold is Rs.2 lakh, for example, you can acquire a loan up to Rs.50,000. This ratio determines the amount you can do against your gold ornament.
As a borrower, you should be aware that different banks and NBFCs calculate LTV ratios using different criteria; you should be aware of what goes into the lender’s LTV ratio calculation.
6. Disregarding the Repayment Structure
A lender can provide you with one of four distinct repayment plans. It’s critical to comprehend different frameworks and choose the one that best suits your needs.
–Regular EMIs- This is the most basic repayment option for salaried borrowers with regular cash streams. Repayment will be in EMIs, as with other loans, and will include both interest and principle.
–Partial Payment- You can return the interest and principal amount as and when you choose under this structure. It’s not necessary to stay on the EMI schedule you made at the start. This is a unique repayment plan created specifically for the consumer. For example, if you pay a larger portion of the principal upfront, you will have to pay less interest later.
–Only Interest EMI- In this arrangement, the lender requests that you pay only the interest as an EMI, with the principal due in full on the maturity date. It is beneficial to borrowers who are anticipating a large sum in the shape of an FD or RD maturity.
–Bullet Repayment- At the time of loan maturity, you must pay the loan in full, including interest. There are no EMIs to pay during the loan’s term. Interest will be calculated every month and must be paid at the end of the month.
7. Not knowing what kind of gold you can get a loan
Banks only give loans on gold that is 22 carat or higher in purity. As a result, if your gold isn’t as pure as it should be, it might not help. Only the weight and purity of the gold will be used to determine the loan value when pledging a gold ornament with other valuable jewels set in it. The worth of gemstones will not be taken into account.
Lenders in India, on the other hand, prefer to use gold jewelry as collateral because it has more sentimental value and ensures that the borrower pays on time. Banks, on the other hand, do not take gold bars for gold loans, nor do they accept gold bullion or gold coins weighing more than 50 grams.
Who Should Consider Taking Out a Gold Loan?
1. Those in need of a short-term fund
A gold loan is a common working capital loan that helps firms meet their short-term funding needs. On a comparative basis, a gold loan is chosen over a personal loan with unfavorable interest rates in such situations.
2. Those with a poor credit rating
Because the jewelry serves as collateral for the loan, the bank is willing to give a gold loan to someone with a bad credit score.
3. Those who own gold but are taking out a personal loan to buy it.
People who are considering a short-term personal loan and have gold sitting idle in lockers should consider a gold loan rather than a personal loan to save money on interest costs.
4. Those who take out a gold loan from a disorganized source.
Users are considering taking out a gold loan from an unorganized player because they are afraid of being turned down by organized financial institutions due to their credit score history. Users who fall into this category end up paying high-interest rates of up to 50% each year. A gold loan from a bank or other organized player is a preferable option because credit history has no bearing on the loan. After all, a gold loan is fully secured.
This will reduce interest costs because banks are required to charge interest following RBI guidelines, which are market-compliant and not excessive.
Factors that Influence Interest Rates on Gold Loans in India
There are a few things that determine your Gold Loan Interest Rates when applying for a gold loan from any of the lenders. These include the size of your loan, your credit score, external benchmarking, and your monthly income, among other things. Before settling on an interest rate, a lender will take these things into account. All of these characteristics are discussed in greater depth below. Please take a look at it!
1. Amount of the loan
Whether you take a gold loan from a bank or a financial organization, the loan amount plays a significant impact in deciding your Gold Loan interest rates. As you may be aware, the loan amount is determined by the total gold value pledged by you. Because gold prices are at an all-time high, you could be able to get a bigger loan.
The gold loan amount is usually between 65 and 90 percent of the total gold value. The bigger the loan amount, the higher the interest rate on a gold loan. Several lenders set interest rates based on the value of gold pledged. The Indian Overseas Bank Gold Loan Interest Rates, for example, vary depending on the loan amount. The interest rate on a loan of more than INR 3 lakh is greater than that on a loan of less than INR 3 lakh, ranging from 7.05 percent to 8.15 percent each year.
So, before selecting the best Gold Loan Interest Rates for you, make sure to examine the required loan amount and compare all of your possibilities.
2. Monthly Earnings
A Gold Loan is a secured loan that many people prefer over unsecured loans like personal loans because of the flexible eligibility conditions. As a result, securing loan approval from a lender will not be difficult. Lenders, on the other hand, like to look at the monthly income before deciding on an interest rate. Your repayment ability is determined by your monthly income. If you don’t have any previous obligations in the form of credit cards or loan EMIs, a greater monthly income will increase your repayment capability.
Low gold loan interest rates can be obtained with a bigger monthly income. Because of your high repayment capability, lenders will be confident that you will be able to repay the loan on time. A low monthly income can also affect your loan amount since lenders are unlikely to supply you with a greater loan amount due to your limited repayment capabilities.
3. Methods of Benchmarking Banks use it to determine interest rates.
To determine the Gold Loan Interest Rate, banks mostly use two types of benchmarking methods: MCLR linked Lending Rate (Internal) and Repo Rate Linked Lending Rate (External). Interest rates on Gold Loans vary from one lender to the next depending on the benchmark they use. The Repo-rate Linked Lending Rate is a bank’s lending rate linked to the repo rate, whereas the MCLR tied lending rate is a bank’s lending rate linked to the MCLR.
For example, if the RBI decides to decrease the Repo Rate by 40 basis points, the RLLR will also be cut by 40 basis points. On the other hand, if historical trends are taken into account, the MCLR linked lending rate might be reduced by only 20 basis points. These benchmarking methods cause interest rates on Gold Loans to vary from one lender to the next.
If your Gold Loan interest rates are connected to the RLLR, they will be revised at least once every three months and reflected in your EMI amount, as opposed to the rates tied to the MCLR, which will be updated once every six months or once every year. If the lender uses the external benchmarking approach, gold loan interest rates will fluctuate whenever the RBI alters its repo rate. In this situation, you can keep track of the gold loan interest rates.
As a result, when deciding on Gold Loan interest rates, you should look into the benchmarking methods used by a lender so that you can make an informed selection.
4. Credit Score
One of the most crucial things that influence your interest rates is your credit score. A high credit score shows that a person has an excellent payback history and is creditworthy. Credit score determines an applicant’s eligibility for unsecured loans, whereas credit score influences interest rates on gold loans.
How Do Interest Rates on Gold Loans Affect Your Repayment Amount?
Interest rates have a direct impact on your loan payback amount in any circumstance. When compared to high gold loan interest rates, the repayment amount for a gold loan will be smaller if you choose lower interest rates. In contrast to other loans, Gold Loan offers three additional repayment alternatives in addition to the EMI.
Bullet Repayment and Interest Payout at Regular Intervals are two of these strategies. However, regardless of which repayment option you choose, the interest amount on your Gold Loan will be affected by interest rates. So, how does the interest rate on your Gold Loan affect the amount you repay?
Consider the following scenario for a better understanding. Assume that an applicant wishes to take out a Gold Loan of INR 2 lakh for 24 months. We’ll use two different interest rates in this example: 10% and 15% each year, to see how interest rates affect the repayment amount. With a 10% annual interest rate, the monthly installment would be INR 9,229, and the interest outgo would be INR 21,496.
In contrast, if we assume a 16 percent annual interest rate, the monthly installment will be INR 9,793 and the interest expense will be INR 35,023. As you can see from the previous example, choosing a higher gold loan interest rate will cost the applicant roughly INR 500 per month more than picking a lower interest rate of 10% per annum. Similarly, the applicant will have to pay INR 14,000 extra in interest throughout the loan. As a result, you should choose a gold lending facility with reduced interest rates.
The Gold Loan EMI Calculator can help you with all of these calculations. You only need to provide a few basic facts, such as the amount of money you need to borrow, the interest rate, and the length of time you want to borrow it for. The EMI amount and interest outgo will be calculated promptly by the tool. This is a useful tool for estimating your finances and comparing your possibilities when it comes to Gold Loan Interest Rates.
Taking a gold loan: Myths vs. Facts
Banking and financial institutions have come a long way, and their evolution has been transformative for both businesses and individuals. Gold has historically been used as a yardstick for measuring financial success. Gold loans are still a common financing option for many people in today’s world.
Gold served as a springboard for the establishment of today’s banks and financial institutions, which specialize in transferring funds from investors to lenders. The gold standard was widely utilized as a monetary system before the 1920s, and currency values were linked to gold. The gold standard was eventually superseded by today’s fiat money, which is backed by the governments of individual countries.
Let’s take a closer look at what a gold loan is and how it works now that we’ve learned how gold has always been an important component of the banking sector.
1. Examining the Facts About Gold Loans
If you’re considering taking out a gold loan, knowing the basics will be quite beneficial. The gold loan is a sort of secured loan that the borrowing party takes from the lending party. Gold items are offered as collateral, in this case, acting as a safety net for the lender. The loan amount given to the borrower is usually less than 75% of the gold value. The current market criteria are used to determine the value of gold objects.
Gold loans are similar to personal loans in that they allow you to satisfy your financial obligations immediately. People typically use a gold loan to finance home renovations or purchases, medical obligations, business capital requirements, and so on. The majority of these costs fall under the category of personal requirements. Gold loans have several perks that make them an excellent choice for individual financial demands. Because the gold loans are secured, the lender faces less risk; as a result, the verification process is simple and does not necessitate extreme precautions.
It gives you complete freedom to utilize your money according to your needs and requirements, free of speculations and intrusions. In the case of gold loans, you are not required to offer any further collateral by the lender. Furthermore, as compared to personal loans, the interest rate on a gold loan is usually lower. These were some key aspects and information about gold loans. Let’s look at some of the common misconceptions about gold loans now that we have a better knowledge of what they are.
2. Gold Loan Myths and Reality
There are numerous fallacies about gold loans that discourage people from using this easy financial tool. The first and most common misconception about gold loans is that they are only available through jewelers and jewelry stores. This notion is deeply ingrained, and those with little knowledge about gold loans are left with only one option. Alternative gold loan providers, such as banks and non-banking financial corporations (NBFCs), offer more secure and systematic gold lending schemes for clients.
In addition, the interest rate is modest. People are frequently concerned that their gold items will be stolen or replaced with fraudulent replicas. When you take out a gold loan from a reputable bank or financial organization, this is far from the case. The gold that these institutions have promised is kept in vaults with strict security measures in place. The third misconception is that gold loans offer the best interest rates.
In this scenario, the truth is subjective. The interest rate on all gold loans is not the same. The amount of interest charged on gold loans is determined by the borrower’s profile, CIBIL score (a three-digit number that determines creditworthiness), and the type of lender selected by the borrower. When compared to personal loans, the interest rates are cheaper, but it is also more subjective.
People frequently believe that their gold items cannot be used for gold loans because they are old. True, the government has published recommendations for the quality of gold products, but it has not stated that old ones cannot be utilized to obtain a gold loan. The only determining factor is the purity of the gold product, which must be at least 18 Karats according to the rules.
The final misconception we’ll discuss has to do with the gold loan process. The majority of people believe that getting a gold loan is difficult and time-consuming. This is not the case; gold loans are processed quickly, and they are frequently accepted and processed on the same day. It is the quickest approach to raising funds and only requires simple KYC document verification to complete the loan disbursement process.