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 for gold loan 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.
Interest rate and tenure of gold loan
A gold loan is one of the most flexible and accessible financial solutions, offering competitive interest rates and customisable tenures. The interest rate on a gold loan is generally lower than unsecured loans like personal loans because it is a secured form of credit, where gold jewellery acts as collateral. The rate can vary based on factors such as the lender's policies, loan amount, and market conditions.
The tenure for a gold loan is equally flexible, and designed to suit various repayment capacities. Borrowers can choose from different repayment options, such as monthly, quarterly, half-yearly and annual payments based on their finances and cash flows.
Gold loans are an attractive financing option due to their competitive interest rates and short repayment tenures, making them ideal for those in need of quick funds. Whether for personal expenses or urgent commitments, gold loans provide timely financial support. It is essential, however, to evaluate your repayment capacity before borrowing. Comparing the gold loan interest rate offered by different lenders helps you find the most cost-effective solution. A transparent understanding of charges and tenure ensures you choose a plan that aligns with your financial goals, avoiding any repayment stress in the future.
If you are considering a loan against gold, ensure that you understand the terms, especially the interest rate and tenure. Timely repayments not only prevent the risk of losing your pledged gold but also help maintain a healthy credit score, making future borrowings easier. Whether you need funds for education, medical emergencies, or expanding your business, a gold loan provides a reliable and efficient solution tailored to your needs.
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 jewellery 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:
- 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 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.
Differences between secured gold loans and unsecured loans
When comparing gold loans with unsecured loans, it is important to understand how each option works. The key factor lies in whether the loan is backed by collateral. Here's a detailed comparison:
Feature
|
Gold Loan
|
Unsecured Loan
|
Type of Loan
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Secured – backed by gold assets
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Unsecured – no collateral required
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Collateral Requirement
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Requires gold jewellery or ornaments as security
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No asset pledge required
|
Interest Rate
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Lower, since the loan is backed by gold
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Higher, due to greater risk for lender
|
Loan Amount Basis
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Based on the value and purity of the pledged gold
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Based on income, credit score, and financial profile
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Approval Time
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Fast – often approved within the same day of application*
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Slower – involves credit checks and paperwork
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Eligibility Criteria
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Simple – Need to be an Indian citizen, between 21 to 70 years of age with 18-22 karat gold to pledge.
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Stringent – credit score and stable income are essential
|
Risk to Borrower
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Risk of penalty or auction of pledged gold if not repaid
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No asset loss, but poor credit impact if defaulted
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Suitability
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Ideal for quick funds at low cost with gold
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Suitable for those without gold but with good credit
|
In short, gold loan is secured or unsecured is a common question. Gold loans are secured loans since they involve pledging your gold assets. In contrast, personal loans are unsecured, which makes them more flexible but also more expensive in terms of interest rates. Borrowers must evaluate their assets, urgency, and repayment ability before choosing between the two.
Why secured gold loans are a popular financing option
Secured gold loans have gained significant popularity as a financing option in recent years due to several advantages they offer to borrowers. With low-interest rates, flexible repayment terms, and quick disbursement of funds, they have become a go-to option for those looking to meet urgent financial needs.
One of the primary reasons for the popularity of gold loans is their relatively low-interest rates. Because gold loans are secured by a tangible asset, lenders are able to offer more competitive interest rates compared to unsecured loans like personal loans. The lower rates make gold loans an affordable borrowing solution for people across different financial backgrounds. With rates generally ranging between 7% and 15% per annum, borrowers can save significantly in interest compared to the high rates often associated with unsecured loans.
Another key factor contributing to the popularity of gold loans is the quick approval and disbursement process. Gold loans are processed much faster than unsecured loans, as lenders mainly assess the value of the gold being pledged rather than scrutinising the borrower’s credit history, income, or financial background. This makes gold loans an attractive option for people in need of immediate funds, as approval can often be completed within a few hours, and the loan is disbursed quickly, making it ideal for emergencies.
The flexible repayment options offered by gold loans are also a significant draw. Borrowers can choose from different repayment schemes such as bullet payments (where both principal and interest are repaid at the end of the loan term) or interest-only EMIs (where the borrower pays only the interest during the tenure and clears the principal amount at the end). This flexibility allows individuals to tailor the loan to their financial situation and choose the most comfortable repayment plan.
Furthermore, the easy eligibility criteria for gold loans contribute to their popularity. Since gold loans are secured against gold, lenders are primarily concerned with the value of the pledged gold, rather than the borrower’s credit score or income. This makes it easier for individuals with poor credit histories or no credit history to qualify for a loan. As long as the borrower has gold to pledge, they can usually access a loan with minimal documentation and approval barriers.
Gold loans are also very accessible and can be taken for various purposes such as medical emergencies, educational expenses, wedding costs, or business funding. This versatility makes gold loans suitable for both personal and professional use.
In addition to these advantages, the low risk involved in gold loans further adds to their appeal. While the borrower risks losing their pledged gold in case of default, the lender is secured by the value of the collateral, meaning the lender’s risk is minimal. This helps borrowers get access to funds quickly without facing stringent requirements.
Overall, the combination of low interest rates, quick processing times, flexible repayment options, and easy eligibility makes secured gold loans a popular and practical choice for many individuals looking for quick financing.
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.
