Introduction
It is no secret that India is the second biggest consumer of gold in the world besides China ranking at the top. Neck and neck in the investment dual, real estate, and jewelry industries are two of the largest investments among Indians with people of all classes eagerly investing in gold more and more increasingly historically. The annual gold demand over 30 years has increased dramatically by 804%, and the trend is only chasing perpetuity.
Therefore, among all assets gold is one asset that everyone seems to have possessed; largely by women, hence is widely used to fill gaps upon existing or potential financial emergencies to fund short or medium term needs. Popularly known for its ready capital, loan against gold in India do not condition credit scores and supply funds to customers with all profiles alike; in lieu of gold.
In this blog we will look into all aspects of a gold loan and how you can or not benefit from the investment.
What Is A Gold Loan?
A gold loan is a subtype of loan against security, given when deposited gold in the form of jewelry or coins to obtain instant capital assistance. This type of loan is largely preferred when the person obtaining funds has ample amounts of gold sitting idle in their lockers or at home. Contrary to popular practice, the person who may have a financial emergency can also avail of this loan quickly with his limited gold assets without the need for credit or income check.
The borrower, who has raised capital with this type of loan will have to repay the loan in EMIs or chosen mode of repayment like any other type loan over the course of agreed maturity due with interest over principal amount acquired. However, the biggest disadvantage of taking a gold loan is that you stand to lose your collateral in case of default. However, in order to mitigate this risk, some lenders offer insurance packages for your gold items that protect them in case of accident or theft.
How Does Gold Loan Work?
To avail of a gold loan, the process is similar to a LAP (Loan Against Property). The borrower applying for the loan has to contact a lender who deals with this type of loan and fill out an application form after discussing the deals and terms with the dealer or the banker. However unlike with LAP, the lender is not interested in your income or other aspects of your credit, the lender will assess your generic eligibility and will evaluate the pledged gold, appraising the value of gold deposited, purity, etc.
Once the eligibility criterion is met, the borrower will decide on the loan distribution amount depending on the given parameters of the gold and its current market value. Most lenders offer a loan of up to 80% market value of the gold pledged as collateral, with some even more generous with up to 90%. Therefore the borrower should check these parameters with his lender and discuss his options and goals before signing the contract.
Once everything has been estimated and the borrower will then deposit collateral that will be secured in a safe house (strictly followed by safety protocols) of the lender’s company before receiving their loan amount and repay the loan in full within the decided due date specified in the agreement contract, usually ranging from 3 to 12 months, and extended upon request.
How Does Gold Loan Influence CIBIL Score?
While applying for any loan, credit bureaus will require to conduct a hard inquiry, also known as hard pull, a method used to obtain complete credit records to perform creditworthiness evaluation based on the applicant’s repayment history, score, etc. This is hard to pull my ding a few credit points but the process itself will not harm your credit score unless you have applied for loans with multiple financiers over a short span. However, there is a 14-day grace period within which the borrower can place multiple inquiries that will be totaled as one single inquiry.
Therefore, like any loan you might lose a few points (IF) the lender will request a credit history, usually not more than 5 points, with gold loans too. However, you are more at benefit than loss when we talk about taking out a gold loan. That is,
- The lenders may not usually perform credit checks but that will vary from bank to bank depending on their policy.
- Even if the lender has performed a hard inquiry, once you have availed of the loan, if you make your payments regularly in due time and do no default on the time, you will substantially increase your credit score over a short span, since the tenure for the loan usually ranges from only 3 to 12 months at an average.
What Are Gold ETFs?
ETF, short for Exchange Traded Fund is a type of government initiated investment fund that allows a person to perform trading by trading their gold ETF units in gold investment firms or gold bullions on a stock exchange pattern. Simply put, with gold ETF, you can invest in gold price and gold stock ETF, i.e with companies dealing with gold mining, gold price index, or other related activities depending on the type of investment.
In India, one can buy or purchase an ETF through open-ended mutual funds, moreover this option is feasible and popular among investors because the money amassed through the trading process of the Gold ETF units is reinvested further in gold only and is close to the earnings of selling tangible gold.
Advantages & Disadvantages Of Gold Loans In India
There are several advantages to a gold loan compared to disadvantages. However, we will discuss one by one to know if this choice is the right choice for you, or if you should rethink your investment plan, if not.
Advantages Of Taking A Gold Loan
Quick Disbursals
Gold loans in India are secured loans that require minimal documentation and thus are easily processed after evaluation of the gold submitted to the lender. Therefore the process is usually ranging from anywhere between a few minutes to a few hours and is highly popular when the loan required is for emergency capital requirement situations.
Preferential Interest Rates
Depending on the purity and the type of gold pledged, the interest rates on the gold may vary from bank to bank. Therefore, the gold loan lowest interest rate bank in India offers interest rates that are highly negotiable unlike other loan types, and can be acquired with a high loan-to-value ratio if the borrower has met the conditions set by the lender.
Income Proof Not Required
Since the loan type is secured, the lender will not ask for income or employment proof of the borrower. Therefore the documentation is limited to KYC and is relatively faster and easier, unlike other loan types.
Loan For All Profiles
The lenders when providing security are not interested in your credit score. Therefore, even if you have a poor credit score, the lender may not request alternatives or increase interest rates on your loan. Instead, they will only qualify you for the loan based on the gold provided as collateral and therefore there are very low chances of your application getting rejected.
No Added Charges
There are no prepayment or foreclosure charges on gold loans with most banks. Therefore you can enjoy low to no fee privileges with gold loans in India.
Discounts On Schemes
There are several schemes depending on the several parameters for gold loans. Women can have an advantage over gold loans in India with selected lenders and can enjoy their benefits with discounted offers on the loan.
Door-Step Evaluation
The gold loan provides doorstep evaluation services. Many bankers will follow safety and security protocols and process this loan depending on the borrower’s request. Therefore your gold is safeguarded and is protected under high-security surveillance.
Disadvantages Of Taking A Gold Loan
Defaulting Risk
Risk of defaulting on a loan against gold in India is always a possibility. However, the lender will not directly seize your gold without warning you first. There are several grace warnings and penalties after which you will be notified before your gold is seized and auctioned to recoup the outstanding loan amount. I.e if the borrower is subject to late payments or missed payments, you will still get penalties on the loan without detrimental effects unless this is a repeated behavior gone without an explanation.
LTV
Most banks offer a flexible LTV on the loan against gold in India, however, it is not 100%. On average banks or financiers offer up to 75% to 80% of the market value of the gold to the lender as a loan, therefore the borrower still benefits from a higher loan, but just not the entirety of the asset value.
How To Find Best Deals On Gold Loans In India In 2022
Loanz360 is India’s first financial supermarket that delivers expert financial solutions for all profiles and patterns under one roof. Our ex-bankers with 50+ years of cumulative experience help you make the best financial decision with unbiased expert advice at every step of the process.
We are partnered with leading financial banks and NBFCs, such as, HDFC, IDBI, Manapurram, Muthoot, Shiriram, PNB, and more with interest rates as low as 9.25%! Check out our services now!
From personal, business, professional, gold, mortgage, working capital, NRI, student, and car loans extending to insurances, service stations, and custom products loans such as loans against security, property, shares, invoice, rentals, etc., Loanz360 deals with personalized offers for each client of any credit profile with an easy and minimal documentation process. Among other things, our clients with satisfactory credit scores can also benefit from added discounts on fees with Loanz360.
Final Word
Loan against gold in India is a very affordable and quick option for people in possession of physical gold assets readily. You can also research digital gold options that do not require physical gold assets. However, gold loans are highly popular and preferable among the Indian community for filling gaps within their emergency financial requirements. Therefore, if you are one among them who need quick capital to fund your needs, this might just be the option for you.
If you are still not sure how, give us a call at Loanz360 and schedule a meeting with our representative, who will take you through the process of buying and financing a loan, along with comparing the market rates and finding the best deals that fit your pocket with discounted offers and flexible services. Loanz360 also have services to offer gold loan lowest interest rate bank in India with best terms and product range. Book your consultation today and get offers on your loan.
