What Are the Procedure, Merits, and Demerits of a Gold Loan

1. Introduction

• Brief explanation of what a gold loan is: Gold loans are a type of asset-backed loan. The borrowers give their gold as collateral to the lender to secure a loan. Once the loan is repaid to the lender, the lender gives possession of the collateralised gold to the borrower and closes the loan!

• Why are gold loans popular as a financing option? Gold loans are one of the most famous types of lending products available in the country. This is because these are easy to avail, with little to no barriers to avail, low interest rates, easy repayment options, among many more features.

• Overview of what the article will cover: In this article, we will cover the process of availing a gold loan, and also the advantages and disadvantages of gold loans.

2. What Is a Gold Loan?

• Definition of a gold loan: Gold loans are collateral-backed loans, where the borrower’s gold serves as collateral to avail a loan from the lender. Once the loan is repaid to the lender, the lender gives possession of the collateralised gold back to the borrower and closes the loan!

• Types of institutions offering gold loans (banks, NBFCs, financial institutions): In India, gold loans are offered by several players in the informal and formal sectors. In the informal sector, private players like jewellers, money lenders often provide gold loans, and in the formal sector, players like banks, NBFCs, and financial institutions provide gold loans. It is essential to avail loans from trusted players like indiagold for your gold loan needs!

• Common uses of gold loans: Gold loans are a reliable way to avail funds quickly and in a cost-effective way. Since the gold loan doesn’t have a restriction on the end-use, it can be used for a variety of uses like funding emergency requirements, funding business, and much more!

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3. Procedure for Obtaining a Gold Loan

3.1 Eligibility Criteria

• Ownership of gold: One of the most important factors to avail a gold loan is to ensure that the borrower is the owner of the said collateral. One cannot avail a gold loan against someone else’s gold.

• Age and income considerations (if any): Another basic criterion to avail a gold loan is that the borrower should be at least 18 years of age. Some lenders may also have income criteria in place; it is best to check with the lender.

3.2 Documents Required

• Identity proof: Identity proof is one of the most important documents that are required to avail a gold loan. Documents like an Aadhaar card, a PAN card, a driving license, etc., are generally used as identity proof documents.

• Address proof: Address proof is an important document. For this, one may use utility bills, the rent agreements, etc.

• Passport-size photographs: Passport-size photographs are generally required for the application process; however, many lenders use digital cameras available at the branch to capture the photograph.

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3.3 Steps Involved in the Gold Loan Process

• Submission of gold for valuation: The first and foremost step in the gold loan process is to submit the gold for valuation. This step involves the lender assessing the gold to arrive at the valuation, and effectively, the amount that can be lent to the borrower against the said gold collateral.

• Purity and weight assessment: The lender then assesses the gold collateral based on the purity and weight parameters. These 2 parameters are determinants of the market value of the collateral, which essentially decides the loan amount.

• Loan amount determination: Based on the collateral assessment, the lender calculates the loan amount.

• Approval and disbursement: Once the loan amount is decided and agreed upon between the borrower and the lender, the amount is approved and disbursed into the borrower’s account.

• Safe storage of gold by the lender: Now that the loan is disbursed, the gold’s custody is taken by the lender and is kept in safe storage. Lenders like indiagold ensure that the gold is kept safe in a bank locker.

4. Merits (Advantages) of a Gold Loan

• Quick loan approval and disbursement: One of the biggest advantages of a gold loan is the sheer speed at which the loan can be availed. The application, as well as the disbursement, is extremely fast. Lenders like indiagold offer loan disbursement in a matter of minutes!

• Lower interest rates compared to unsecured loans: Since gold loans are a type of secured loan, they attract a lower interest rate as compared to unsecured loans, such as personal loans. This is because the collateral helps negate the lender’s risk exposure.

• Minimal documentation: Gold loans require minimal documentation. This is one of the reasons why many people prefer gold loans, since the low documentation requirement really speeds up the process and adds to the customer experience.

• No need for a credit score in many cases: Gold loans do not require a credit score. This is one of the biggest advantages of gold loans, since people with low credit scores can also avail these loans.

• Flexible repayment options: Gold loans often come with a flexible repayment option aimed at making customers’ lives easy. Aligning the repayment

5. Drawbacks of Gold Loan

• Risk of losing gold in case of default: One of the biggest risks associated with availing a gold loan is the risk of losing it. If the borrower defaults on the loan, the lender reserves the right to liquidate the asset to recover the money.

• Loan amount depends on gold value fluctuations: The Gold loan amount is directly proportional to the value of the collateral. If the value of the gold depreciates, so does the maximum amount of the loan, and vice versa.

• Limited loan tenure: Gold loans often have a limited tenure. Hence, it is important to understand that the repayment is made in full during the tenure to avoid any unwanted fees.

• Additional charges (processing fees, storage fees): Many lenders often charge additional fees such as processing fees, storage fees, pre-payment fees, etc. Such charges add up to the cost of borrowing. Hence, it is important to avail loans from reputed lenders like indiagold, who offer full transparency with the commercials of the loan.

7. Important Tips Before Taking a Gold Loan

• Check interest rates and hidden charges: It is important to always check interest rates and hidden charges before availing a gold loan. This can help compare lenders and avail a loan from the best lender.

• Understand repayment terms clearly: Understanding repayment terms clearly is important before taking a gold loan.

• Borrow only the required amount: Borrowing responsibly is extremely important. Over-borrowing can result in default and ultimately losing the gold.

• Choose a reliable lender: Choosing a reliable lender is extremely important. Doing so can make life easy. Lenders like indiagold offer exceptional customer service, and also great product offerings while maintaining transparency about the commercials.

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