When requesting a loan for gold, what should you expect?
The absence of default on a gold loan makes it one of the most lucrative loans for financial institutions (NPAs). Taking jewellery as collateral means the bank will keep the item even if the borrower stops making their required minimum payments (EMIs).
A gold loan operates as follows:
When a customer applies for a gold loan at a bank, the first thing the bank does is evaluate the worth and purity of the customer’s gold jewellery as security.
Always Check Who You’re Dealing With (KYC) The bank conducts “Know Your Customer” (KYC) checks in accordance with the Reserve Bank of India’s (RBI) requirements, during which time it learns personal information about the loan applicant (such as name, address, date of birth, and Social Security number) as well as other data that will be used to determine whether or not to approve the loan.
Loan authorization for gold: After the know-your-customer (KYC) process is finalised and the worth and quality of the jewellery has been established, the financial institution and the customer can settle on loan conditions. When both parties are in agreement, the loan is sanctioned and the agreed-upon sum is sent to the borrower’s account. This whole procedure may be finished in a couple of hours.
Who Ought to Go for a Gold Loan?
Those in need of funds in a hurry
A gold loan can be used to meet the immediate cash flow needs of your organisation. When weighed against a personal loan with higher interest rates, a gold loan is the better option.
Individuals who have a low credit score
A gold loan can be given to a borrower with a low credit score since the jewellery is used as collateral against the loan.
Gold owners who are also getting a cash advance
If you are looking into getting a short-term personal loan and have gold sitting in storage, you may want to look into getting a gold loan instead.
Individuals who choose to borrow gold through the informal financial system
When users are afraid of being turned down for a loan by conventional financial institutions due to their credit history, they may consider applying for a gold loan from an unregulated source. Users in this category often wind up paying exorbitant interest rates of 25% to 50% annually.
A gold loan from a bank or other reputable lending institution is preferable since the borrower’s credit score is irrelevant to the approval of the loan. Banks are obligated to charge interest in accordance with RBI regulations, which are market-compliant and not excessive, therefore this will help save money on interest.
A few factors should be kept in mind, though, when you apply for the loan:
Check out your repayment choices
The method of paying is very crucial, and you have several alternatives to think about:
Money for the bullet: Monthly payments are used to determine the total amount due, but the principal and interest are paid all at once when the loan term ends. If you expect cash flows to improve toward the conclusion of your loan term, this is a good alternative to consider.
Making a decision between banks and NBFCs
There are two main avenues you might go when looking for a reliable lender. You can get a gold loan from a bank or a non-bank financial institution (Non-Banking Financial Company).
Small and medium-sized financial institutions (NBFCs) may be more lenient in their gold valuations, and the procedure is often quick and easy. However, NBFC interest rates are often higher than bank rates. But other financial institutions, such as HDFC Bank, provide Gold Loans at competitive interest rates, while also guaranteeing a simple application procedure with few required documents and no hidden fees.
Make sure it is a reliable financial institution
Make sure the lender is trustworthy before putting your valuable gold as collateral. You should think twice before taking out a loan from a jewellery store or a local business. They might possibly be frauds; that’s a possibility, too. Choose a reliable and established banking institution. You may rest easy knowing that your gold is held by a respected organisation like HDFC Bank, which has been named India’s most trusted bank.
The loan amount is based on gold’s market price
The gold’s worth will determine how much of a loan may be approved. This indicates that the valuation and loan amount will increase as the purity of the gold increases. Gold of 18k to 24k purity can be used as collateral for a loan. Gold pledged for an item of collateral must be free of any precious or semiprecious stones or other metals. Your loan amount will be determined solely by the value of the gold in the collateral.