Irrespective of financial background, almost every Indian household possesses some amount of gold. During financial emergencies, individuals can monetise this otherwise idle asset and address any financial requirement with ease. Almost all leading financial institutions, including NBFCs, offer the best gold loan deals to eligible borrowers. As per World Gold Council, the organised gold market in India is estimated to grow at 15.7% to reach Rs.4.61 lakh crore by FY22.
The drivers of India’s gold loan market boom include factors like the LTV, doorstep loan facility of NBFCs, instant loan processing and many more. Hence, individuals looking for instant, asset-backed advances can consider opting for gold loans. Nonetheless, before applying, borrowers should also need to keep a few factors in mind to leverage optimum benefits.
Things to know before applying for gold loans
Following are some crucial factors that intending borrowers should know before applying for a loan on gold.
The current market valuation of gold is quite high. Moreover, in India, gold ornaments are handed down from one generation to another, with emotional value attached to them. Hence, the first thing that comes to mind while opting for a gold loan is the asset’s safety. Much to the relief of borrowers, best gold loan providers maintain the highest security measures to ensure the safety of pledged gold.
Generally, the gold is collected from a borrower’s home after appraisal with military-grade security. Selected financiers also place gold into a GPS-enabled container before it is kept in its designated place. In most cases, this gold remains deposited in financier’s vault under CCTV surveillance with motion detectors installed till the tenor ends. Moreover, selected financiers offer complimentary insurance of pledged gold for the entire tenor.
The loan amount primarily depends on the LTV or Loan to Value of the pledged gold. As per recent RBI guidelines, lenders can offer an LTV of up to 75% of the gold’s current value. However, the LTV varies from one lender to another and depends on various factors like –
- Gold weight
- Carat (higher the carat measurement, higher the loan amount)
Lenders decide on the gold loan amount after assessing the weight and the carat. For instance, 24-carat gold is considered the purest form of it, hence, the loan amount will be highest for 24-carat gold jewellery. Selected NBFCs like Bajaj Finserv offers gold loan of up to Rs. 1 crore with high LTV.
Note that most financiers only offer loan against jewellery and not against gold coins, bars, etc.
The best gold loan is available against reasonable interest rates. Since the loan is backed with gold collateral, the lenders can ascertain its timely repayment, hence, the low gold loan interest rates. Due to this, the overall borrowing cost is also reasonable for a gold loan compared to unsecured advances.
Moreover, you can utilise the fund for any purposes like financing medical expenses, wedding, travel, etc., due to its unrestricted end-usage feature.
The repayment structure of a gold loan is flexible and helps borrowers choose as per their repayment capacity. Best gold loan providers offer the following repayment options to choose from –
- Borrowers can repay the loan through regular monthly instalments, comprising both interest and principal. Or,
- They can choose to pay only the interest on a monthly or quarterly basis and repay the principal at the tenor’s end. Or,
- Borrowers can also pay the total interest at the very beginning and repay the principal later.
The multiple repayment options help borrowers to manage their repayments better, eliminating the risk of defaulting.
Loan processing time
The simple and short loan application and disbursal process make gold loans one of the best funding options to address financial emergencies. Moreover, you only have to submit KYC documents to avail of an online gold loan with a doorstep pickup facility. Hence, it takes only a few minutes to get approved. The loan disbursal process is initiated almost instantly after sanction.
Like other secured credits, you can also hasten the best gold loan repayment with part-prepayment and foreclosure facility. In most cases, you are eligible to avail these facilities without paying any additional charges. Most gold loans accompany a part-release facility wherein you can release some jewellery by prepaying. The documentation process is also simple for this financial product. Borrowers can complete their applications by submitting their KYC details only.
However, it will be wiser to check with your lender for any other charges associated with this loan.
These are some of the most crucial factors that borrowers should consider to get the best gold loan deals. Moreover, gold loans also make for convenient financing options for women borrowers as they generally inherit gold jewellery as “Streedhan”. With this fund, they can start their own business, fund higher education or bear any other expense, as required.