Working Of A Gold Loan

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A loan is known to be a sum of money borrowed that is expected to be paid back with interest. The loan borrowed may be secured in some cases and unsecured in other cases. A gold loan is one of the types of secured loans. A borrower takes the loan against gold instead of gold coins or ornaments from a lender. The loan amount, which is sanctioned by the lender, is a certain percentage of gold value the borrower pledged as collateral. The borrower gets the gold items back once he repays the loan amount. Before making a final decision , the customers are suggested to undertake a comparison for different banks. You can undertake an online analysis about gold loan price in India. This can turnout to be a very helpful practice.

Eligibility criteria for a gold loan

Any individual who possesses gold in any form of items, may it be coins, gold biscuits, gold bars, pieces of jewelry, gold utensils, gold idols, etc. can get a gold loan. Any resident can avail of a gold loan of India, such as salaried employees, self-employed, homemakers, and even farmers. A high credit score is not required to be eligible for a gold loan. An individual with no or poor credit score can also take a gold loan. This will also give the individual a chance to create a credit score. 

How does the gold loan work?

The entire procedure of gold loan is quite similar to other secured loan processes. The process includes the following steps:

  • The borrower needs to visit the nearest lender’s branch with the gold items that the individual wishes to pledge for the loan amount.
  • The lender then evaluates the gold items such as coins and pieces of jewelry provided by the borrower as collateral. The lender checks the purity and weight of the gold items.
  • About 60%-70% of the gold value is sanctioned as the loan amount considering the loan to value ratio. This amount varies from one lender to another. For example, if the gold pieces worth is around Rs. 2 lakh, then a maximum amount of Rs. 1.5 lakh will be sanctioned. The loan amount also depends on the tenure of the loan and the borrower’s capacity to repay the loan.
  • The gold items are then locked away securely and safely in a locker or a vault.
  • The gold coins and pieces of jewelry are returned to the borrower once the loan is repaid.

The lender of the gold loan has the right to sell the gold items to compensate for the loan amount if the individual fails to repay the loan amount. If the borrower defaults on the loan repayment, the individual will lose the gold items he has pledged to the lender. 

Repayment of gold loan

An individual can repay the loan in four different ways:

  • Pay interest as EMI & principal later: The borrower can repay the investment according to the EMI schedule. The principal amount is needed to be paid in full at the time of maturity. 
  • Make partial payments: In this mode of payment, the EMI schedule is not essential. If one repays the principal amount initially, then the interest amount gets reduced automatically and vice versa. The borrower can make principal and loan repayment partially according to his choice.
  • Bullet Repayment: In this case, both the interest and the principal amount is repaid at the end of the loan tenure. 
  • Regular EMI option: The EMI includes both the interest and the principal amount and the best option for the salaried class.

The interest rates of gold loans are low, as there is no risk since it is a secured loan. The interest rates depend upon the capacity of a borrower to repay it and the tenure of the loan. The period of a gold loan is usually less. There is no limitation on the end-user of the gold loan. Other secured loans, such as car loans and home loans, have specific use. Taking a gold loan is of great help when there is a sudden financial need, such as wedding finances, child education, medical emergencies.

Also, a self research from your end is useful tip. A well-informed investor can carry forward a good deal.