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What Is Gold Loan And How It Works

India’s love affair with gold can be traced back to ancient times. It is an integral part of our culture and belief system. It is not merely meant for adornment but also serves as a reserve of wealth. Gold is a keen part of not only Indian weddings but also of several other festivals and functions. According to the World Gold Council, India’s demand for gold increased by 804% from 1987 to 2016. It is not only a status symbol but a good investment, a memorable heirloom, and is equivalent to actual, liquid cash. It can be used not for only investment and industrial purposes but availing a loan against gold is also seen as an option.

What is Gold Loan?            

Gold loan is the loan offered to the customer against his/her gold ( ornaments, bricks, coins) by Gold loan company, i.e., gold is kept as collateral. The amount of loan received by the customer against his gold is almost equal to the market value of gold at that time.

Repaying the loan –             

The gold loan can be repaid through monthly installments (EMIs). Once repaid, you’ll get your gold article back. Also, there are no restrictions on ending-use gold loans. So, gold loans offer a safe, fast, and convenient means of meeting emergency money requirements. Be it your sudden need of money for your child’s education or big hospital bills, be it a big fat Indian wedding or buying the home of your dreams, gold loan is the fastest and safest source of getting money.

Eligibility for getting a gold loan –            

Unlike personal loans, which have strict eligibility criteria, gold loans can be availed by anyone having gold. Any Indian citizen, be it professional, housewives, businessman, farmers, can get a gold loan against his/her gold. Thus, it can be said that gold loans are for anyone and everyone with gold!

The interest rate on the gold loan –            

Gold loans are secured loans; this means the interest rate is comparatively lower than unsecured loans (e.g., personal loans). However, the rate of interest varies from lender to lender. One should know that banks offer gold loans at a lower interest rate as compared to NBFCs. So, compare the interest rate of at least three companies or banks before getting it. This will help you find a better option.

Tenure –            

The tenure of the Gold loan is shorter than other loans. It varies from lender to lender between a range of 3 months to a year. However, some lenders provide the facility of renewing the tenure. One should make sure to pay back the loan on time, as a failure in doing so will lead to loss of his/her gold article.

Determination of amount of gold loan –             

Firstly the lenders check the authenticity of your gold item. Most lenders offer a loan of up to 75% of the market value of your gold article. Factor such as your capacity to pay back the loan, tenure, etc., also affects the amount you’ll get against your gold. However, some paperwork is also required.

Like any other thing, the gold loan also has its pros and cons.

It’s pros include –      

It is a safe and comparatively faster means of getting money than the other types of loans. Less paperwork is required, and the eligibility criteria are also less strict as compared to other kinds of loans. If repaid on time, there is no better option of availing cash.

Its cons include –             

Gold loans are meant to fulfill short-time emergency needs, and thus, the tenure of gold loans are shorter as compared to other loans such as a personal loan.

As we can clearly see that the number of pros of gold loan outruns a number of its cons, thus, it can be concluded that gold loan is the best way of meeting the sudden need for money. But, make sure it is repaid on time, else you might end up losing your valuable gold article.

What do you think?

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Written by Sakshi

I work as a finacial advisor. I hold expertise in the field of investment and finance. I love to blog on topics related to finance and investment

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