All you need to know about Gold Loans

All you need to know about taking gold loans

Gold has emerged as a great investment over the years, and its liquidity seems to attract more and more takers. Essentially, if you face a financial crisis at some point of life, you can utilize the gold lying idly in your locker without loosing its heirloom significance and sentimental affinity by availing of a gold loan. The purity of the gold will be tested, and based on its asset value, one can receive approximately sixty to eighty percentage of its market value as a loan.

Gold loans in a nutshell

Minimal documentation and assured security are the highlights of availing of a gold loan. The interest rates fluctuate between 13 -14% on gold loans depending on the bank and other non banking financial institutions. It serves as a helping hand in unexpected situations like emergency fund shortage in educational needs, a wedding, home renovation, health care, travel, down payment and so on, not by selling your gold, but by pledging it to a lending institution. This yellow metal can be efficiently converted to cash in a short span of time.

The process

The lender checks the purity of gold and weighs the metal, and based on that evaluates its market value. 

The procedures for availing of a gold loan include reaching your trusted bank or non banking financial institution with the requisite documents, filling of the application form with accurate details, quality test and weighing of gold, stating the amount, signing of the term sheet after reading all the terms and conditions carefully. Documents such as electricity bill, water bill, property tax assessment, attested bank passbook and telephone bill can be used as valid address proof for the person taking a loan. The rate of gold depends on the need and change in their international market. 

Pros and Cons

When we face a financial dilemma, the first thing that comes to our mind is a loan. Personal loans are readily available for immediate financial needs, but the high interest rates are a turn off. Gold loan with comparatively lower interest rates can be useful in such a situation.

The benefits of a gold loan include flexible repayment, faster processing, lower interest rate, no processing fees, no fore closure charges and no credit score and income proof is required. The major drawback of taking a loan by placing your gold as the collateral, is that in case of a gold loan default, the lender or the bank has the legal right to freeze your account and can auction it to the public, in order to make back up their value. Hence the chances of losing one's gold investments are high and thus this makes a gold loan a little riskier overall, at least if one feels pressured by the repayment instalments and timeframe.

While buying gold, one has to pay both a making and wastage charge to the jeweller. But while selling gold, the jeweller does not consider these making charges. So buying gold to later use as collateral is not the best decision, if one is looking for true, maximum value. If you need quick money for a short period of time, gold loans can be beneficial, but if you are looking for a higher loan amount with low interest rates, then gold loans may not be the best idea.