Maximize the potential of your gold: Everything about gold loans

Gold has always been a popular and valuable asset and a symbol of prosperity. In times of financial uncertainty, it can serve as a reliable collateral source for obtaining a funds through gold loans.

It is a loan against gold where a borrower uses their gold to obtain funds from a lender. Gold loans are popular because they are easy to obtain and typically have lower interest rates than unsecured loans. Plus, they are often processed quickly, making them an attractive option when in need of immediate cash. Let's understand them in detail to help you make the most out of it.

What is a gold loan?
 

In a gold loan, the borrower provides their gold as security to a lender and receives funds in exchange. The lender holds the gold as collateral until the loan is fully repaid. This type of loan is secured, and the amount granted is usually determined based on the value of the gold pledged.

Gold loans are usually secured loans, meaning the lender has a legal right to take possession of the gold if the borrower fails to repay the loan. Because the loan is backed by collateral, the lender typically charges a lower interest rate than they would for an unsecured loan, making it a more affordable option for many borrowers.

Features of a gold loan
 

· Loan amount 
 

 The loan amount is usually based on the value of the gold pledged. Lenders typically offer loans ranging from 70% to  75% of the gold's value.

· Interest rate

The interest rate on a gold loan is usually lower than that of an unsecured loan. The rate varies from lender to lender and is typically based on the loan amount, loan tenure, and the borrower's credit history. Banks such as IDFC FIRST Bank offer competitive and fixed interest rates on their gold loans starting from 0.80% p.m. 

· Repayment tenure
 

The repayment tenure for a gold loan is usually shorter than that of other loans, typically ranging from six months to two years. However, some lenders may offer longer repayment periods.

· Processing time
 

Gold loans are usually processed quickly, and the funds are disbursed within a few hours or days of the loan application being approved.

· Minimal documentation 
 

Gold loans require minimal documentation compared to other types of loans. Borrowers usually need to provide proof of identity, address, and ownership of the gold being pledged. IDFC FIRST Bank Gold Loans do not require income documents and the process is entirely paperless and hassle-free.

Gold loan versus other loans
 

· Interest rates on gold loans are typically lower than personal and car loans but higher than home loans

· The approval process for gold loans is generally quicker than for personal loans, and the loan amount is limited to the value of the gold provided as collateral

How does a gold loan work?
 

Process of availing a gold loan

· To obtain a gold loan, individuals can either apply in person at a bank or non-bank lender's branch or opt for the more popular online application method in urban areas

· Once the application is submitted, a lender representative will contact the applicant to arrange for an appraisal of the gold. The lender's appraiser will evaluate the purity, quality, and market price of the gold to be pledged

· The lender will then conduct the Know Your Customer (KYC) process as required by the Reserve Bank of India (RBI) regulations

· The loan is approved and disbursed if the applicant agrees to the loan amount and associated charges. Processing fees for gold loans typically range from 0.10% to 1% of the loan amount

Repayment and consequences of default payment

The repayment of a gold loan can be made in various ways, including regular EMI payments, a lump sum payment at the end of the loan tenure, or prepayment of the loan amount. The borrower must ensure timely loan repayment to avoid any penalties or negative consequences.

If the borrower fails to repay the gold loan on time, the lender can initiate the recovery process. The consequences of defaulting on a gold loan can include the following -

· Late payment charges
 

If the borrower misses an instalment payment, the lender may charge a penalty fee.

· Legal action
 

The lender can initiate legal action against the borrower to recover the loan amount. This may include filing a case in court and obtaining a decree against the borrower.

· Auction of pledged gold 
 

If the borrower cannot repay the loan, the lender can auction the pledged gold to recover the loan amount. However, the lender must follow the due legal process and give the borrower adequate notice before auctioning the gold.

· Loss of gold
 

If the lender auctions the pledged gold, the borrower may lose their precious asset, which may have sentimental or financial value.

· Credit score impact 
 

Defaulting on a gold loan can negatively impact the borrower's credit score, making it difficult for them to avail of loans in the future.

In case of any difficulty in repayment, the borrower can communicate with the lender and explore options such as loan restructuring or rescheduling.

Advantages of a gold loan

· Quick processing 
 

Gold loans are one of the fastest types of loans to process. The loan is approved within a few hours or days of application, and the loan disbursal process is quick.

· Lower interest rate 
 

Gold loans generally have lower interest rates than other loans, such as personal loans and credit cards. This makes it an attractive option for borrowers who need funds for a short period.

· Flexible repayment options 
 

Gold loans offer flexible repayment options such as regular EMIs or a lump sum payment at the end of the loan tenure. This allows borrowers to choose the repayment option that best suits their financial situation.

· No income proof required 
 

Unlike other types of loans, gold loans do not require the borrower to provide income proof. This makes it easier for borrowers with low or irregular income to avail of the loan.

· High loan amount 
 

The loan amount for a gold loan depends on the value of the gold pledged by the borrower. Therefore, borrowers can avail of a higher loan amount than other loan types.

Also read - Gold Loan vs Personal Loan: A comprehensive guide

​​Disadvantages of a gold loan
 

· Risk of losing gold 
 

The biggest disadvantage of a gold loan is that the borrower risks losing their pledged gold in case of default on loan repayment. Therefore, borrowers need to ensure timely repayment of the loan. You must also choose a reliable lender such as IDFC FIRST Bank Gold Loans to avoid the risk of scams.

· Limited loan tenure 
 

Gold loans generally have a limited loan tenure ranging from a few months to a few years. This makes it unsuitable for borrowers who need a long-term loan.

· Impact on credit score
 

Defaulting on a gold loan can negatively impact the borrower's credit score, making it difficult for them to avail of loans in the future.

· Processing fees and other charges 
 

Gold loans come with processing fees and other charges such as appraisal charges, prepayment charges, and late payment charges. These charges can increase the overall cost of the loan.

· Limited usage
 

Gold loans can be used only for specific purposes, such as personal or business needs. Therefore, it may not be suitable for borrowers who require funds for other purposes such as education or travel.

It is important for borrowers to carefully consider the advantages and disadvantages of a gold loan before availing of one. It is also important to compare the loan terms and interest rates offered by different lenders and choose the one that best suits their financial situation. 

IDFC FIRST Bank Gold Loans have fixed interest rates and online loans starting from Rs 10,000. Customers can benefit from various repayment plans, including EMI and monthly interest. 

Conclusion

Gold loans can be a convenient and quick source of funds for those with gold assets. They offer lower interest rates and flexible repayment options and do not require income proof, making them an attractive option for borrowers. Choose a reputable lender that offers favourable loan terms and conditions. 

IDFC FIRST Bank provide instant disbursal of Gold Loans up to 75% of your gold's value. With an easy and convenient onboarding process,  one can avail quick disbursal of gold loans. You can meet your immediate financial needs without delays. 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.