November 26, 2020

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7 Simple Steps To Secure A Loan Against Gold

A gold loan can be taken to meet an instant cash requirement by keeping your gold items or jewellery as collateral with the lender. The lender charges interest on loan against gold, and once you repay the total loan amount along with interest, you can take your gold item back. It is a secured loan. Thus, the interest rate on the gold loan is much cheaper than any other loan. As the gold loan application process is fast and convenient, it is one of the most beneficial loans to take during a financial emergency. It’s an easy way to get cash for gold. 

Many lenders across India offer online gold loan to their customers at competitive interest rates. But before you settle for a gold loan, you need to be aware of its procedure. So, here’s how you can secure a gold loan following these seven simple steps.

1. Type Of Gold

Generally, any gold ornament, coins or bars, can be used as collateral. The purity and type of gold items pledged is one of the significant factors that determine the loan amount. Coins and bars offer greater value than gold jewellery. Lenders check for the purity of gold either via in house valuation setup or via third party valuators to determine the total principal amount to sanction. 

2. Loan amount

The loan amount is dependent on the borrower’s repayment capacity, and the kind of gold pledged by the borrower. As lenders retain margin amount, so up to 60% of the value of gold is offered after valuation. Currently, lenders are granting gold loans of up to 10 crores. However, the loan amount varies from lender to lender. 

3. Compare Interest Rates

Comparing the interest rates is an essential step to follow while availing a loan against gold as the interest rate for a gold loan varies from lender to lender, and also, is dependent on multiple other factors. It is necessary to research before you settle for a gold loan. The gold loan interest rate ranges between 9.24% and 26% per annum. The factor on which the interest rates depends is LTV ratio, loan tenure, loan amount etc. For instance, as higher LTV ratio means a higher risk for lenders, they impose a higher interest rate to make up for the risk involved in such loans. 

4. Documentation

Thanks to digitisation, you can apply for a gold loan online without any hassle. And, the documents required to avail a loan against gold is minimal. You only need to submit your recent photograph, PAN card, identity proof and address proof with the application. It’s simple and easy. 

5. Deposit of gold

Once you submit the application form after carefully filling it, a gold loan agreement is signed between the borrower and the lender. Then, the gold that has been valued is deposited with the lender for disbursal of the loan. And you will get cash for gold within a couple of days. The lender keeps the gold items until you repay the loan. 

6. Loan tenure and repayment

Gold loans are medium to short term loans with a tenure ranging between 12 to 18 months. The repayment facility is quite flexible and convenient. Apart from the regular monthly instalments, borrowers can repay the principal amount at the end of the loan tenure and the total interest by using gold loan EMI calculator amount upfront. However, the alternative repayment option eliminates the requirement to make monthly payments of the interest component and principal. So, you can opt for any repayment option according to your needs. 

7. Processing fees

Processing fee refers to the expenses charged by lenders when processing your gold loan application. Lenders charge a fee upto 2% of the loan amount. Some lenders also charge a flat fee. So, make sure to check the processing fee charged on your loan amount before finalising your loan application as in case of a higher value loan, it may be a large amount.

Conclusion

Gold loans are secured loans with easy-to-meet eligibility criteria and minimal documentation. It does not even require a CIBIL score for the approval of the loan. So, lenders generally disburse the loan in a couple of hours. And, those who are eligible for an online gold loan can even receive the loan amount within a few minutes. In case the borrower default the loan, the lender can sell the gold pledged by the borrower and recover its dues as per the terms of the loan agreement.

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