Gold is treasured in every Indian household as an asset and an auspicious symbol of prosperity. There is hardly any celebration where gold is not coveted, but its significance is felt most in times of a financial crisis. Thus, gold is a reserve shield that appreciates and saves the day in unforeseen financial setbacks. And lenders in a broad spectrum, including banks, NBFCs, and gold loan companies, are more than eager to disburse against the asset as collateral. We can gain a deeper understanding of gold loans when we explore them further. 

Understanding Gold Loan

Gold retains its value and appreciates over time. Moreover, since it is a tangible asset, its value as collateral is immense. Thus, gold loans are a credit product aggressively pursued by lenders regardless of their category. But on the other hand, the gold loan is the fastest means to raise funds to tide over a funds crunch.

Moreover, the gold loan is an asset-secured loan that disburses only up to 90% of the pledged gold’s market value, transferring the risk onus upon the borrower. So, it makes sense to know certain things before applying for an online gold loan.

Things to Know Before Applying

Although the belief that gold loans are easy to get is substantially true, you should do some groundwork before applying for an online gold loan. In addition, the gained insight will help you maximise the loan against gold and ensure it is protected until you repay and get your gold asset back. So let us explore.

• What are the gold loan benefits?

Why consider a gold loan over others in the first place? For example, you can also apply for a personal loan to tide over a financial crisis. Yet a gold loan is preferred for various reasons. So, let us find out how it benefits you.

1. A gold loan requires minimal documentation.
2. A gold loan is a secured loan, and the interest rates are lower than unsecured loans, starting at 6.9% p.a.
3. Your credit history is not included in the criterion for the gold loan and its conditions.
4. You do not have to submit additional income proof with your application for an online gold loan. You can apply for a gold loan with only your basic KYC documents.
5. You are offered flexible repayment options to choose from, matching your convenience and preferences.
6. Your gold is stored in secure vaults until you repay the loan. Once done, you can take the gold home.

• Which gold loan repayment structure to choose?

Lenders offer you a flexible repayment structure in gold loans. However, the one you choose must align with your financial credentials. 

1. Regular EMI: It is ideal for the salaried as you can pay the EMI comprising interest and principal component with the help of a steady income stream. 
2. Bullet Payment: Interest is charged and debited upfront while disbursing the loan. The entire amount is repayable in a lump sum upon maturity. 
3. Interest EMI: The accrued gold loan interest rate is repaid in regular EMI over the loan tenure and the principal upon maturity.  

• Which lender is ideal for the gold loan?

Gone are the days when your neighbourhood pawn shop or the jeweller was the best bet for a loan against gold. Today, gold loan companies vie to deliver well-structured gold loans eliminating the usurious practices of the old. However, a background check is necessary before choosing the preferred lender. Apart from banks, RBI regulated financial institutions are the safest for protecting your asset. Choose a lender that has a reputation of offering the maximum value of your gold and has minimum extra fees and charges associated with the gold loan.

• What is the gold type accepted as collateral?

You can pledge any gold item, including ornaments, as security for the gold loan. However, valuation depends on their purity, and 18-carat purity or higher is accepted. Thus, the higher the purity, the higher is the market value and, accordingly, a higher loan amount. On the flip side, the gemstones in the ornaments are ignored while calculating the market value. Therefore, gold coins with 99.99% purity are the best collateral for the gold loan with a 50 gm cap.  

• How much is the maximum gold loan amount?

RBI has restricted the maximum gold loan amount of the market value. So, the higher the security market value, the higher the loan amount. However, the amount cap may vary from lender to lender within the RBI’s limit. Accordingly, most lenders have capped the amount at 75% of the market value. 

Bottom Line

The online gold loan is perhaps the fastest processed credit product in the Indian financial industry. In addition, the documentation is minimal, and your credit history is not a criterion for loan approval. However, do adequate homework before applying for a loan. You can maximize your loan benefits with advanced knowledge and protect the pledged asset until recovery.