Due to the impact of COVID-19 when all other traditional funding options got obstructed, borrowers found it convenient to meet their financial requirements by pledging their gold as collateral. Resultantly, the price of gold also increased by 25% last year. Moreover, the Reserve Bank of India also increased the loan-to-value ratio from 75% to 90%.
Availing a gold loan is simpler, considering its less stringent evaluation and easy-to-meet eligibility. The loan is sanctioned entirely based on the ornaments pledged.
Features and benefits of a gold loan
Undoubtedly, gold loans are the best option in solving emergency conditions by offering high amounts in no time. Following are some of the benefits of a gold loan:
- High-value loan quantum
One of the essential benefits of a gold loan is that one can avail a substantial amount against pledging their gold jewellery. One can borrow 90% of the loan amount based on the market value of pledged gold. Usually, financial lenders accept gold jewellery ranging from 18-24 carats after gauging the weight. But borrowers must note that the credit can be availed only against gold ornaments. Gold bars and coins will not be accepted as effective collateral for availing loans.
- Simple eligibility parameters and documentation
Usually, a gold loan does not come with stringent eligibility criteria and documentation. Therefore, anyone possessing a substantial amount of gold can avail this advance. Even individuals who do not possess a decent credit score can avail this financial product. Due to the high value of the pledged asset, borrowers can enjoy simplified borrowing terms and meet their financial requirements instantly. Following is the basic qualifying parameters of a gold loan:
- An applicant’s age must be within 21-70 years of age
- Any salaried/ businessman/ traders/ farmers/ self-employed individuals can avail this credit
Though the eligibility to avail a loan against gold is based on the abovementioned criteria, the sanctioned amount also depends on the LTV ratio offered.
Individuals can only submit KYC documents and enjoy quick approval of the gold loan. Following are the documents they need to produce to the lenders-
- KYC documents (Aadhaar card, PAN card, Voter ID etc.)
- Any utility bill not older than 3 months
- A letter from any authorised signatories
If required, lenders may ask the borrower to submit income proof along with essential loan documents. Therefore, it is essential to arrange the entire list of documents to ensure hassle-free approval.
- Interest rate and repayment facility
One of the greatest advantages of gold loans is that they feature lower interest rates than other financial products. In addition, since the lender holds your gold jewellery as security, the risk factor is reduced.
Apart from this, the popularity of gold loans is also because of their multiple repayment options. Borrowers can opt from a wide suite of repayment options at their convenience. For example, borrowers can pay the interest amount periodically and principal at the end of the tenor. Alternatively, they can opt to pay the entire interest amount at the beginning of tenor and principal later.
- Minimal processing time
Since there are no stringent eligibility criteria and heaps of paperwork, the processing time is less than other loans. This allows borrowers to avail short-term loans conveniently. Moreover, reputed NBFCs like Bajaj Finserv do not impose pre-payment or foreclosure charges against a gold loan.
To make it more convenient for the borrowers, many financial institutions are introducing beneficial schemes to apply for online gold loans and avail credit almost instantly.
- Wise investment
Gold has always been considered a beneficial investment option for individuals. It is gold that acts as a financial safeguard against any type of financial crisis faced by individuals. As gold prices fluctuate every day, it is wise to invest in gold to ensure a secured future.
Moreover, borrowers can pledge pure gold items, ranging from 18-24 carat, and negotiate with the lender to avail the low gold loan interest rate.
Many reputed financial institutions and NBFCs significantly focus on loan against gold and offer high loan value depending on the weight of gold. Availing of a gold loan is quite convenient as borrowers just need to pledge their gold as security. However, borrowers must understand the terms and conditions before deciding on any financial product.