One can ascertain Indians’ love towards gold with a startling fact that the households in India have approximately 25,000 tonnes of gold worth Rs. 110 lakh crore. Now, you can make the best use of the idle gold to avail of loans at lower interest rates to cover financial exigencies. Both banks and NBFCs offer gold loans at lucrative interest rates. However, before you decide to apply for a gold loan, you need to assess the advantages and disadvantages of the same.
Gold finance — Pros
Gold loans are secured loans that enjoy maximum confidence among lenders. Hence, the lending process is relatively easier, faster, and hassle-free. The documentation, eligibility criteria, and other factors are relaxed as well with no requirement of credit scores in most cases. Modern gold financiers assess the gold’s quality within a few minutes and can provide you with the loan amount accordingly.
Better interest rates
Compared to unsecured personal loans, gold finance carries lower interest rates due to its secure nature. Because of the increase in competition among lenders, top NBFCs can provide better interest to the benefit of the borrowers. You can use an online gold loan calculator to know the applicable interest rates.
The gold loan process is quite flexible, and the lenders are willing to waive off any miscellaneous charges such as processing fees, foreclosure fees, etc. Based on the quality of the gold pledged, the lenders are ready to provide a better loan amount at competitive rates with flexible tenures. The tenure can start from three months and go up to four years and vary from one lender to another.
Absence of a credit history check
Assessing credit score has become inevitable with most loans nowadays. However, with gold finance, the lender might not consider the credit score of the borrower as the principal amount, interest rate, and tenure are decided based on the market value of the pledged gold.
Easy repayment structure:
The easy repayment structure for gold loans means that it allows you to pay interest before or after the tenure of the loan, pay off the principal later, or repay the loan amount in fixed EMIs.
Gold finance — Cons
Gold loans can fetch you a loan amount not higher than 75% of the gold value, and the banks/NBFCs treat the remaining percentage as margin in case of non-payment, which is higher. Sometimes you may not get the desired amount based on the gold that you possess. However, using an online gold loan calculator available on lenders’ websites will set correct expectations for you, even before applying for the loan.
If a borrower cannot repay the loan amount despite reminders from the lender concerning non-payment, there is a higher risk of losing the gold to the lender. Such instances never occur with unsecured loans such as personal loans as there is an absence of collateral. However, unsecured loans do have higher interest rates compared to gold loans. A borrower can overcome such undesirable situations, such as gold loss, by planning the repayment phase in a better manner or scheduling standing instructions so that they do not miss the due date.
Most lenders provide loan terms from two years to four years which might be challenging for people who wish to have longer tenures. However, this feature is based on the belief that the borrowers might not like their gold pledged at the lender for an extended period.
Impact on credit score
The lender might not require a credit score to provide gold loans, but the credit score of the borrower might get affected in cases of non-payment. Experts claim that borrowers must be cautious about not missing the payment dues of any loan type as it has a direct impact on the credit score which might affect their future loan applications.
The popularity of gold loans over other secured loan types prove that they are a preferred choice among consumers for short- to mid-term finance requirements. Using an online gold loan calculator and comparing lenders in the market on different platforms will help you make an informed choice.