To take care of a financial emergency, an individual has various options. These include taking a personal loan or redeeming their investments in financial instruments like the provident fund, mutual funds etc. When it comes to borrowing from a financial institution, other than availing a personal loan, one can also opt for a gold loan. If you are planning on taking a gold loan (or a loan against gold), here is what you need to know.
What is a gold loan?
To borrow gold, one can opt for gold loan and it has several advantages over taking a personal loan. A gold loan is when one finances gold jewellery for a long time as long as one holds it. If the borrower is able to pay back the loan amount back with a reasonable amount of interest after the initial few months, then the borrower gets to redeem the jewellery. One can borrow up to 15 kg of gold for a term of one year. But there is a maintenance and storage charge (which varies between banks) which is not more than one per cent of the loan amount. The decision of taking a gold loan depends on two factors: Risk: Financial institutions demand security as collateral for gold loans. However, if the loan amount is relatively high, there will be no problem as long as it is secured.
Is there any benefit to taking a gold loan?
According to a reputed institute, banks are not allowed to provide personal loans. When an individual wants to take a loan, he has to provide documents, such as a payslip, statement of account, proofs of salary, vehicle registration, salary certificate, proof of residence, and so on. In some cases, when the loan amount is small, the documents might not be required. However, when it comes to a gold loan, banks want to see a proof of gold worth at least Rs 1 lakh. When a loan is taken against gold, the interest charged on it is higher than a personal loan. This means you end up paying more than the interest amount that you would have paid on a personal loan. For example, if you had taken a personal loan for Rs. 10,000, your interest would have been Rs. 45.
What is the interest rate on a gold loan?
The interest rate of a gold loan is known as the gold loan rate. The rate of interest you pay on gold loans varies from bank to bank. The maximum interest rate you may be charged is 24.99% p.a. on a total loan amount of Rs 25 lakh. You may also be charged interest on the gold jewellery you may have to give as security, if your gold loan is in the form of a pledge. Most gold loan providers prefer giving a fixed interest rate on gold loans. However, they do provide some flexibility in choosing a rate. Interest rate on gold loans In terms of the interest rate, the current gold loan rates are between 8.9 per cent and 12.3 per cent. At the rate of 12.3 per cent, you could get a 20-per-cent interest rate on your gold loan.
How much can you borrow with a gold loan?
1. Gold Loan : 2. Gold loan vs Personal Loan 3. How to repay a gold loan? 4. Interest Rate of a Gold Loan 5. Gold Loan versus Gold Investment 6. How a gold loan works? 7. What are gold loans available? 8. Does it pay a variable interest rate? 9. How to get a gold loan? 1. Gold Loan: If you opt for gold loans, you may need to deposit a lump sum of an estimated amount with your gold loan provider. You need to inform them about the amount that you wish to avail a loan and submit the proof of gold sale. This amount will be used for the payments and interest in the first instance, after which your gold will be mortgaged. Apart from this, you need to do a mini physical inspection of your gold jewellery and/or bullion that you wish to be submitted as part of the loan.
Gold loans are very simple to avail and may be paid off over a short time frame. To take care of an urgent financial emergency, an individual can avail a gold loan or redeem their investments in financial instruments like the provident fund, mutual funds etc. A gold loan is an easy loan to avail for a short term and can be repaid in a few months. On this loan, the security of the gold has been secured. Take Care As with any other financial products, it is always a good idea to do a little research before making a commitment. With gold loans, one should never take any risks with their gold investments. If you are unsure, you can always buy gold as it is the safest investment in the world. Gold loans are not a guaranteed loan. With them, you are dealing with loans against gold.