Gold loan is a loan in which money is sanctioned by banks and NBFC’s to the applicant on the basis of the quality of the gold that the person (borrower) owns and is willing to keep as security with bank/ NBFC. Generally, banks can sanction 85% of the value of gold while Non Banking Financial Company (NBFC) can grant only 60%. Gold in the form of ornaments, coins etc. are acceptable and the purity of gold should be 18-24 carat.
Advantages Of Gold Loan
Loan against gold may be disbursed as a demand draft or even a account transfer. The biggest advantages of this type of loan are irrespective of the background of an individual the loan is disbursed depending upon the amount of gold he owns, one need not have a good credit score, the interest rates charged are more appealing than the personal loan and also requires less paperwork. For such reasons, banks and non-banking financial institutions have been aggressively promoting gold loans.
Interest Rate On Gold Loan – Bank Vs. NBFC
The rate of interest, for banks, is around 14% to 15%. An N.B.F.C, on the other hand, may charge as much as 24%. Though gold loans seem easier to avail, they may prove to be expensive at times. However, given the choice between personal and gold loan many experts feel that Gold loan is better option, money wise. The procedure to apply for a gold loan requires proper documentation such as submission of identity proof, PAN card, address proof, etc. The interest rate in this case is much lower than a pure personal loan as there is a security being provided by the borrower.
‘Bullet Repayment’ Option On Gold Loan
Gold is a not just an asset for Indians, it has a great emotional value. Thus, every person will try his level the loan best to pay back and reclaim his gold which is a huge advantage as it disciplines the borrower. Banks and N.B.F.C.s provide the “bullet repayment” option wherein only the interest is required to be paid during the loan period and the principal can be paid back at the end of the loan period. This substantially reduces the burden on the borrower. A growing section of people have begun to realize that it’s a better bargain to take a loan against gold that lies in lockers unproductively instead of expensive personal loans. This also means saving locker rent.
However, if the amount to be borrowed is large then gold loans are surely not an option.
Alternates Of Gold Loan
In case of loan amount being huge, loan against property may be the only as well as best option. Secondly, since gold has emotional value for people, loan against it shall be raised only if the borrower is sure of repayment or else all the gold may be lost to the lending institution forever. If you fail to pay regular interest or principal and interest, even after regular reminders the gold is melted and sold to recover the outstanding amount. Gold loans are safe as long as the lending institution chosen is worthy and reliable. Its most prudent to opt for a gold loan from a public sector bank or a co-op bank, as there have been cases where lenders have had a history of shutting down and not returning the gold or replacing gold with fake gold.