Everyone has been investing in gold because of its lucrative opportunities and value in the market. According to statistics, the gold loanmarket in India is expected to reach Rs. 4,617 billion by 2022 at the annual growth rate of 13.4%. This represents that the bandwidth of individuals leveraging gold to fulfil their short-term as well as long-term needs is broadening.
The rates for gold in the market change periodically. Thus, it is best to analyze the market rates for gold to make the best out of it. With its multifaceted purpose in terms of commercial and financial investments, today, more than ever, gold is considered as the quickest way to resolve your monetary tensions. Let’s understand the nature of this loan and how it functions in the present market.
What is a Gold Loan?
In layman’s terms, it is basically obtaining a secured loan from the lender by pledging your gold in terms of jewellery or any other form for a certain period. The loan can be acquired according to the time frame decided by the lender in terms of monthly instalments. The loan amount sanctioned to the borrower is based on the percentage of the gold’s value as well as the market rate. However, the interest rate varies across lenders. Thus, it becomes imperative to be knowledgeable about the interest rates of the market and make an informed decision before applying for a loan. Gold loans are usually granted by the majority of the private and nationalized banks, as well as various financial institutions.
How does a Gold Loan Work?
A middle-class man acquires a piece of gold after years of backbreaking work. Thus, it is very difficult to part ways from that investment. The gold loan comes to their rescue as they don’t have to sell their hard-earned dreams. Instead, they can mortgage the gold for a while to meet their emergency demand and obtain it again after fulfilling all the due installments.
The processing of a gold loan is similar to any other kind of loan. Firstly, your gold articles are inspected based on its purity and weight after which its value is decided. The next step is for you to submit the required documents to proceed with the sanctioning of the loan. The general documents that are required for the loan processing include identity proof, address proof, signature proof, a passport size photograph. Sometimes, lenders also ask for income proof, however, this is not usually included in the documents.
Then, an agreement is formed between the lender and the borrower, which includes all the details about the loan, interest rate, and repayment of the loan. Lastly, all the documents like income proof, address proof, etc are verified, and your loan is sanctioned. The tenure of the repayment of instalments is usually short-ranged, however, depending upon the amount, even long-term tenures are calculated. After repaying the monthly instalments on time, which includes the principal amount as well as the interest charged, your gold is returned to you.
Factors should know before Applying for Gold Loan
There are several other pieces of information that one should be aware of before applying for gold loan. Some of them are discussed below:
Eligibility of the borrower
The best part about the gold loan is that anybody who possesses gold can obtain it. Unlike other loans, wherein a stricter criterion is adhered to, for this loan, everyone is considered equal in the eyes of the lenders. Even individuals with a low credit score can apply for a gold loan and get it sanctioned within a day.
Interest rates on gold loan
Now, here is a tricky equation. It is advised that one must never go for a gold loan with limited information in hand. This is because every institution has different interest rates and many of them charge compound interest rate. Thus, one must be cautious about this factor and thoroughly study the lender market before finalizing one. However, Shriram Finance’s Gold Loan is charged on a Simple Interest Rate which is a big advantage to the consumer.
Determination of the Gold loan amount
Everywhere a similar method is followed to determine the loan amount against your gold. The lender inspects your gold articles for its purity and weight. After this, a value of it is decided. This value is usually 75% of the market value. Along with this, the borrowers’ repayment capacities, as well as the tenure of the loan, are other deciding factors of the loan’s amount.
Repayment of loan
The system of repayment of loans differs across different banks and institutions. At some places, the individual has to pay the interest amount during monthly instalments, and at the end of the tenure, they can pay the principal amount. While at other places, an EMI is decided upon, which includes both the principal amount and the interest for monthly repayment.
There are other charges involved in the process of applying and sanctioning the loan. The processing fee, documentation charges, valuation fee, penalty charge for delayed payments of instalments, service tax, etc. are several other charges that one should ask and beware of while applying for a gold loan. These charges differ from lender to lender.
Several banks and institutions are noted and regarded for their low interest rates, quality services, and gold security measures. Shriram Finance is one such recognized NBFC that offers loans against your gold jewellery even if you have a low credit score or no credit available. Its credibility and reliability are known attributes, thus garnering the trust and loyalty of its borrowers.
Today, more than ever, everyone needs an anchor to survive the rough tides of the financial crisis. Gold loan is increasingly becoming that anchor for the masses.
So, keep your stress at bay with gold loans.