Gold Loan - Smart Way to Keep Gold Safe

1. Introduction

• How gold jewellery is both an asset and a security cushion: Gold in India is one of the most sought-after metals. Gold at home is a mark of social status and holds a significant cultural value. Furthermore, due to its ability to produce consistent returns and a hedge against inflation, it serves as a fantastic asset, as well as a security cushion to avail quick funds in the form of gold loans.

• The idea is that a gold loan allows you to unlock value while keeping the gold safe: Gold loans are a type of collateral-backed loan, which essentially means that you can avail quick funds by collateralising your gold. This means that gold not only produces returns in the form of price appreciation, but can also be used to avail loans, which enables the borrower to avail funds while not losing the ownership of the gold.

• What the article will cover: The article will cover gold loans in detail. What it is, why it’s smart, and what to check while availing a gold loan.

2. What Is a Gold Loan?

• Definition: A secured loan where your gold (e.g., jewellery) is pledged as collateral. In simpler terms, a gold loan is an asset-backed loan where the borrower gives possession of their gold to the lender in order to avail a loan. Once the borrower repays the loan in full, the lender gives back the possession of the gold to the borrower.

• Basic workings: The lender values the gold (weight & purity), and based on the assessment results and loan amount requirement, you receive a loan; the gold is held by the lender until the repayment is made in full, including the principal, interest, as well as any applicable charges.

• Typical features: Some typical features of gold loans include faster approval, fewer eligibility hurdles than unsecured loans, like credit score and credit profile requirements, among many.

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3. Why It’s a Smart Way to Keep Your Gold Safe

• Safe storage and custody: The lender usually stores pledged gold securely, reducing risks of theft or damage, which makes it safer as compared to storing gold jewellery at home. Lenders like indiagold ensure maximum security of gold by placing your collateralised gold jewellery in bank lockers

• You retain ownership: You don’t sell your gold; you pledge it, get funds, then you get it back when you repay. This means that throughout the journey from application to settlement of the gold loan, you retain the ownership throughout the lifecycle; only the custody of the gold remains with the lender as long as the loan is active.

• Liquidity without losing the asset: Instead of selling your gold items in a hurry (and possibly at a discount), you use them as collateral. This way, you retain ownership and enjoy a possible increase in the gold price, which will translate into an increase in the value of your gold asset!

• Cost-effective borrowing: Because it’s secured, gold loan interest rates are lower than many unsecured options. Interest rates are directly proportional to the risk associated with the loan. Typically, the lenders charge a higher interest rate to account for their risk in case of unsecured loans like personal loans. However, that’s not the case with gold loans, where the lenders are able to pass on the benefit of lower risk exposure to the borrower in the form of lower interest rates. Lenders like indiagold offer one of the lowest interest rates in the gold loan market.

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4. What to Check Before You Take One

• Choose a reliable lender or finance company: Check storage practices, vaults, and insurance of pledged gold. Choosing a reliable lender or a gold loan company is absolutely critical, as it means that you’re at peace of mind without losing your gold or facing other lender-specific risks.

• Understand key terms: Loan-to-Value (LTV) ratio, interest rate, tenure, repayment options. These are some of the key terms that have the greatest impact on your finances. Reliable lenders like indiagold cover all these terms in a way which is most beneficial to the borrowers.

• Document everything: weight, purity, description of your gold — get a pledge receipt. This would help you remember all the key details of your gold loan. However, these terms and details are covered in the loan documents.

• Be aware of risks: If you default, you could lose your gold. Also, gold prices fluctuate, which can trigger the lender to demand the difference to ensure that the loan-to-value ratio remains stable and in line with the loan terms.

• Confirm the process of retrieving your gold after repayment. Typically, with reliable lenders like indiagold, the collateral is released quickly; however, some other lender-specific terms can mean a slight lag in getting possession of the gold

5. Risks & Considerations

• Risk of losing the gold if you cannot repay: In case of default, the lender reserves the right to liquidate the collateralised gold to recover any dues. Hence, it becomes imperative to borrow responsibly and repay on time!

• Shorter tenures than many loans — Gold loans typically have a shorter tenure than many unsecured loans. Make sure you can manage repayments well and close the loan on time to avoid any additional charges.

• If gold prices drop, it may affect the cushion/value of your collateral. This can prompt the lender to request the difference to keep the loan-to-value ratio in line with the terms of the loan.

Take a Pre Approved Gold Loan

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