What are the procedure, merits and demerits of gold loan

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Gold Loan is also popularly known as the loan against gold. Gold loan is a method to generate money in the needed times by selling your gold ornaments, which is an asset in an Indian family. Gold loan is a secured loan where a borrower keeps their gold ornaments to a lender as collateral. It is worth mentioning that the gold should be within a range of 18-24 carat. Typically up to 80 percent of the gold jewellery’s amount is given as loan amount which is based on the current market value and quality of gold.

Procedure

Applying for a gold loan is a short and simple process, just like any other loan. The application procedure of the loan is divided into four categories, Gold submission, Evaluation, Documentation and Authentication.

  • Gold Submission

The first step is submitting the gold ornaments or coins to the lenders as the security. Nowadays the procedure can be done both online as well as offline but to submit the ornaments you need to be physically present.

  • Gold Evaluation

After submission, comes the evaluation step, where the lender evaluates the overall value of your gold according to the current market rate. That value tells you how much sum you will receive in a form of a loan. Usually, the lender provides between 70 per cent to 80 per cent of the gold amount, though they deduct the normal processing fees which vary from bank to bank.

  • Documentation

After the loan amount is decided, loan agreements need to be signed by the customer with the signing of the agreement, you will need to submit a few documents:-

  •         Identity Proof (Voters ID Card/Driving Licence)
  •         Address Proof (Electricity Bill/Telephone Bill/Ration Card/Tax certificate)
  •         Passport size photographs    
  • Authentication

In the authentication process, the bank will check all the documents for authenticity. Once the documents are verified, the loan amount will be disbursed into your saving account. If the loan amount is less than Rs 2 lakh then you can get it in cash or NEFT, if the amount is more than Rs 2 lakh then the amount will be paid through RTGS.

Merits

  • Lower Interest Rate

One of the main features of the gold loan is that the loan is provided at a lower interest rate when compared to personal loans as it is a secured loan. The interest rates of the loans range from 9 per cent to 20 per cent per annum.

 

  • Faster Processing

If you need funds in an emergency then this is the option for you. The amount is disbursed in your savings account once the documentation and authentication process is completed. 

  • Minimal Documentation

The documentation process to avail the gold loan is very minimal. Only a few readily available documents like ID proof, address proof and photographs are needed to avail the loan.

  • No Processing Fees

There are very few banks who levy processing fees up to 1 per cent. Whereas there are many banks who do not charge any such fees. The banks and NBCFs also do not charge foreclosure charges, if they do it is 1 percent.

  • No Credit Score Is Needed

In case your loan has been rejected due to low credit score and you are worried again when you have to take a gold loan. You don’t need to worry about that as lenders don’t check credit score while giving a gold loan. 

Demerits

  • You Might Loose Your Gold

You can lose your gold ornaments or coins if you are unable to pay the loan amount which you have taken on your gold jewellery. If you don’t pay the amount then your gold jewellery is auctioned.

  • Gold Loan Is Available For Certain Period

It should be noted that a gold loan is only available for a certain period of time, once that period gets over you have to take the gold jewellery out and pay the remaining amount. 

  • Impact on Credit Score

Though your credit score is not checked while getting a gold loan but it will definitely affect your credit score for future if you don’t repay the loan on time.