Gold has been a safe haven for Indians as they can use its equity to borrow cash anytime during a liquidity crisis. Due to the fast disbursal process, a substantial increase in the market price of gold, high LTV, etc., the gold loan segment has gained immense popularity over the years.
- As per recent data, the gold loan sector is expected to grow at an annual rate of 15.7% in FY22.
As a matter of fact, RBI’s recent decision regarding increasing the loan-to-value ratio of this credit instrument played a part in its growth. It has enabled individuals to obtain a larger loan amount than before. However, there are many other advantages associated with this credit facility, making it ideal for you during a cash crunch.
Advantages offered by a gold loan
Here is a list of benefits you can expect while availing a loan against gold –
- Easy access of funds
The quick processing facility is one of the main reasons why individuals rely on gold loans among all the secured credit facilities. The disbursal process hardly takes a few hours when you approach a financial institution with your ornaments and necessary gold loan documents. Moreover, the documentation process here is simple and short.
Furthermore, some of the reputed lenders even provide ‘ doorstep service’ facilities to increase the convenience of their customers.
- Lenient eligibility criteria
Like most secured loan variants, gold loans come with minimal eligibility requirements. As a matter of fact, lenders do not stress your credit score or repayment track record before sanctioning a large amount. However, it is still advisable to go through your preferred lender’s gold loan eligibility and document requirements before submitting the loan application.
- Lower interest rate
Due to its secured nature, the gold loan interest rate is comparatively on the lower side irrespective of the loan quantum. Since lenders face a lower credit risk since you are pledging your gold ornaments as collateral; hence, it becomes easier to negotiate interest rates.
However, interest rates on loans against gold vary across different lenders.
Also, remember that the purity of your gold assets will have a crucial role to play here as the loan amount will be decided based on that. Make sure that the purity of your pledged gold is between 18k and 24k to be accepted by financial institutions.
- Multiple repayment methods
Gold loans come with flexible repayment methods, enabling borrowers to handle other financial liabilities properly. Here individuals get different payment options to pay off their credit. It includes paying regular EMIs or pay the interest amount periodically and the principal amount later.
- Pay interest only’ option
A great advantage you can get while applying for a gold loan is the convenience to pay only the interest amount every month for the entire repayment tenor. And, the principal amount can be paid either towards the end of the tenor or anytime within that specified duration. This makes your repayment process a lot more affordable and helps in managing other financial liabilities better too.
- No end-use restrictions
While discussing notable benefits of a loan against gold, it is imperative to mention its no end-use restriction. This facility allows individuals to use these funds for a number of purposes. You can meet an array of personal or professional expenses with this financial product, irrespective of their urgency.
- Zero to minimal foreclosure charges
It is extremely important to look out for additional charges before availing of both secured and unsecured loans. Reputed NBFCs like Bajaj Finserv come with part-payment and foreclosure facilities on gold loans, without levying any charges.
Security of physical gold
Lenders ensure the safety of your gold assets. It remains safe in their vaults so that they can return them back to you safely when you complete repayment and close the account. Also, learn in length about their additional security systems to transport your gold items.
Simultaneously, check to see if they offer any insurance coverage against these gold items.
Apart from these, the availability of high LTV, flexible repayment tenor, etc., are other reasons why you should consider gold loans over other secured loans. Keep these aforementioned pointers in mind before opting for a credit against gold in order to make the most of its features.