India is the world's second-largest gold consumer, and Indians' desire to acquire more gold has remained constant over time. The World Gold Council estimates that about 22,000 tonnes of gold are sitting idle among Indian citizens. This has prompted the Indian government, banks, and non-bank financial companies (NBFCs) to promote gold loans aggressively to encourage people to take out gold loans and convert them into financial assets.
Gold loans are secured loans in which your gold items are pledged as collateral to obtain funds for your financial needs and emergencies. When contrasted to personal and credit card loans, it is a less expensive loan. Here's everything you need to know about gold loans, including how to get the best rates and the most money.
What is the procedure for obtaining a gold loan?
Gold loans are given instead of gold jewels, coins, bars, and other valuables deposited with the lender. The gold loan per gram amount can be up to 80% of the gold articles' value pledged. However, depending on the bank's internal policies, the loan amount varies from lender to lender. Any Indian resident who owns gold articles can apply for a gold loan.
Feature of Gold loan-
- Loan Amount:
A gold loan of at least Rs. 10,000 is available. This may differ in urban areas, where the minimum amount may begin at Rs. 25,000. A gold loan per gram has no maximum limit with most lenders; you can pledge as much gold as you have to get the loan.
A gold loan's minimum term can range from three to six months. A gold loan has a maximum tenure of four years. Most lenders, however, only allow a maximum repayment period of two years.
- Interest Rates:
A gold loan's interest rate starts at 10.50 percent and can go as high as 19 percent. However, when you pledge your gold with NBFCs and private lenders, the interest rates are still higher. Axis Bank gold loan charges a 7.45% interest rate to its customers.
The gold items serve as security. The lender will keep them until the loan is fully paid off. If there are repeated defaults, the lender will auction the gold to recoup the losses.
The borrower has the option of paying off the loan before the term expires. Preclosure is usually free of charge with most NBFCs. On the other hand, banks charge a prepayment penalty equal to a percentage of the loan amount. It could be anywhere from 1% to 3% of the total. Because gold loans have a shorter term, most lenders do not have a minimum lock-in period. If there is one, it could last anywhere from one to six months.
- Processing Fees:
To attract customers, some NBFCs waive processing fees. On the other hand, most banks charge a processing fee percentage of the gold loan per gram amount. It could be anywhere between 0.50 percent and 2 percent, with GST on top of the processing fee. Axis Bank gold loan also provides a low-interest rate and charges less processing fee as compared to other loans.
- Late Payment:
If you miss a gold loan payment, it will cost you more money. Late payments may incur a fee from the lender. The fee amount varies from one lender to the next. It is typically up to 2% per year above the applicable rate of interest.
What are the advantages of gold loans over personal loans?
Consider the following scenario: you need money for a sudden financial emergency and have a pre-approved personal loan offer with a 14 percent interest rate. At the same time, you have many gold ornaments in your home that are unused. Do you want to take out a gold loan or a personal loan?
Processing fees on gold loans are significantly lower than those on personal loans, allowing you to save money. Every personal loan has a lock-in period, which is completed before pre-closing can be done. A fee of up to 5% of the outstanding principal amount is charged when a personal loan is pre-closed. Gold loans from NBFCs, on the other hand, can be repaid at any time without penalty, which is a significant advantage over a personal loan.
With so many benefits, a gold loan is one of the most effective ways to deal with any financial emergency. The only disadvantage of a gold loan per gram is that pledging your gold to the lender puts your gold at risk. As a result, make sure the payments are made on time and that the loan is properly closed.