Gold loans provide a quick and efficient way to obtain funds by leveraging gold jewellery. Here is a step-by-step breakdown of how gold loans work:
- Online application
To apply for a gold loan, you just need to fill out an online application form. You need to provide all the necessary details in the form and submit. Or if it suits you better, you can also visit the nearest gold loan branch of to avail of the loan offline.
- Evaluation of gold jewellery
This is where the gold loan process is different from that of other financial products. After applying for credit, the gold pledged as collateral will be evaluated using the state-of-the-art karat metres to assess its purity and weight, considering the prevailing gold price. Based on this evaluation, we determine the exact loan amount that an individual is eligible for.
Here, you must note that RBI has capped the LTV ratio of a gold loan up to 75%. Lenders extend the loan amount to the applicant based on the evaluation and market price of pledged gold. Currently, Bajaj Finance only accepts gold jewellery worth 18-22 karats as a collateral against the loan. In this regard, you can use a gold loan calculator beforehand to assess repayment liability. This online tool displays accurate results within seconds and allows you to plan and manage your finances efficiently.
- Eligibility and documentation
The next step on how this credit facility works is the eligibility and documentation. Being a secured credit option, gold loans do not impose strict eligibility and documentation. However, you need to be an Indian citizen, aged between 21 and 70 years, to avail of this loan. You would also need to provide your basic KYC document and address proof to complete the verification process.
- Credit approval
After evaluating gold articles, documentation and signing of a loan agreement, the credit disbursal process begins. Finally, borrowers will receive their desired loan amount into their registered account. The entire gold loan process from application to disbursal takes a few hours to complete and ensures a hassle-free loaning procedure.
Is a gold loan secured or unsecured?
Gold loans are unequivocally classified as secured loans. This classification is based on the fact that borrowers provide physical gold as collateral to secure the loan amount. In the event of default, the lender has the right to liquidate the pledged gold to recover the outstanding loan amount. This security significantly reduces the risk for lenders, allowing them to offer lower interest rates compared to unsecured loans.
The security of the loan also benefits the borrower. Because the loan is secured by a tangible asset, lenders are more willing to offer higher loan amounts and flexible repayment terms. Additionally, the approval process for gold loans is typically faster and less stringent than that for unsecured loans, which often require extensive credit checks and documentation.
Why are gold loans considered secured?
Gold loans are considered secured loans because they are backed by collateral, specifically gold assets, which significantly reduces the lender's risk. When a borrower takes out a gold loan, they pledge their gold ornaments, coins, or bars to the lender as security. This collateral serves as a guarantee for the loan amount, ensuring that the lender has a tangible asset to fall back on in case the borrower defaults on their repayment.
The primary reason gold loans are classified as secured is the presence of this physical collateral. Unlike unsecured loans, such as personal loans or credit card advances, which rely solely on the borrower’s creditworthiness, gold loans are underpinned by a valuable asset. This reduces the lender's risk exposure, as they can recover the outstanding loan amount by selling the pledged gold if the borrower fails to repay.
Benefits of taking Gold Loans
Gold loans offer a range of advantages, making them an attractive financial solution for many individuals. Here are the key features and benefits of gold loans in Nellore:
- Partial release facility: Borrowers have the option to repay a portion of their loan and retrieve some of their gold jewellery before the end of the loan term, offering greater financial management flexibility.
- No prepayment or foreclosure Charges: Gold loans in Nellore do not have any charges for prepayment or foreclosure, allowing borrowers to repay their loans early without extra costs, thus reducing their overall interest expenses.
- Accurate gold evaluation: Advanced karat meters ensure precise and fair assessment of the gold's purity, guaranteeing that borrowers receive the best possible value for their gold.
- Complimentary gold insurance: Gold loans include free insurance coverage against theft or loss of the gold while in the lender's custody, providing borrowers with added security and peace of mind.
- Multiple repayment options: Borrowers can select from various repayment plans, including monthly, bi-monthly, quarterly, half-yearly, or annual interest payments, with the principal amount due at the end of the loan term.
- Simplified application process: The application process for gold loans is easy and hassle-free, with options to apply online and assistance from customer representatives at local branches.
- Easy application process: Apply for a gold loan online. Our customer representative will help you with your application when you visit our Gold Loan branch in your city.
- Gold loan of up to Rs. 2 crore: We offer gold loans starting from Rs. 5,000 up to Rs. 2 crore. You can choose the amount that suits you best from the offer extended to you.
- 800 branches and growing
We have just opened 60 new branches and are adding more all over India. Additionally, we are opening new branches in the cities where we already have operations.
These features and benefits make gold loans an efficient and advantageous financial solution for residents of Nellore, ensuring they receive quick access to funds with minimal inconvenience.
Potential risks of gold loans
While gold loans offer numerous benefits, borrowers should be aware of the potential risks involved:
- Risk of losing gold: If the borrower defaults on repayment, the lender can auction the pledged gold, resulting in the loss of valuable assets.
- High-interest rates on default: Defaulting on repayments can lead to high penalty interest rates, increasing the overall debt burden.
- Market fluctuations: Gold values can fluctuate. A significant drop in prices can affect loan eligibility or lead to higher interest rates.
- Hidden charges: Some lenders impose hidden charges like processing fees, appraisal fees, or prepayment penalties, increasing the loan cost.
- Short tenure: Gold loans typically have shorter repayment tenures, potentially causing financial strain.
- Over-borrowing: The ease of obtaining a gold loan may lead to over-borrowing and potential debt traps.
- Repossession risks: Repossession of gold can be distressing, especially if the gold has sentimental value.
- Credit score impact: While gold loans don't heavily impact credit scores initially, failure to repay can harm the borrower’s credit rating.
Understanding these risks can help borrowers manage their gold loans responsibly and avoid financial pitfalls.
