Loan Against Gold - Advantages of Loan Against Gold

Well, if you favour all of these criteria when you look for a loan, then a loan against gold, also known as a Gold Loan, might be the perfect candidate for your financial necessity. Of course, the one prerequisite you need to keep in mind, without fail, is that you are in possession of some amount of gold jewellery. Gold loans, being secured loans, need you to pledge the gold articles that you have to the lender, who will sanction a corresponding loan amount to your account pretty quickly.

Benefits of Loan against Gold

If you are still wondering whether a loan against gold is indeed as useful as claimed here, you can breathe easy. We are here to lay out all the ways in which a loan against gold can be advantageous to a borrower. Read ahead to learn all the benefits that a gold loan can offer to you.
Easy Processing

To avail a gold loan, all you need to do is approach a willing lender with the gold articles, and of course your basic KYC documents. The only process that precedes disbursal of the loan being verification of the quantity and quality of the gold produced, you can expect a hassle-free experience.

As credit checks or income verification are not of much importance in the case of a loan against gold, the processing phase goes through easily with minimum documentation. This is because the loan is secured against collateral, which reduces a considerable amount of risk for the lender. Hence, they are free to go through with quick processing.
Quick Disbursal

In the loan market, most loan against gold products are labelled as 'Instant Gold Loans'. This is because the borrower does not have to wait for a few days, or even till the next day, to get the loan amount in his or her bank account. As the processing phase is done quickly, the lender can go ahead with disbursing the loan to the borrower immediately. In most cases, the gold loan is disbursed to the customer within just a couple of hours. This makes a loan against gold the ideal option if you are urgently in need of funds, and can't afford for the disbursal to take much longer.
Versatility

The terms of a gold loan does not specify any particular end use when it is issued to a customer. Going by this, a borrower can use funds from a loan against gold for any reason; be it a medical emergency or to finance a wedding. Such a lack of restrictions makes it of great use, especially if a number of different needs are to be met, or if you as a loan borrower have a change of heart as to the purpose of taking out the loan.
Low Interest Rates

As mentioned before, Gold loans are secured loans, as they are issued against a collateral asset. If the borrower is to fail to pay the loan back, the lender can simply sell the gold articles to recuperate the loan amount. This gives a significant advantage, as opposed to unsecured loans that have to increase interest rates to make sure the loan amount is recovered sooner. Thus, a loan against gold can be availed with considerably low rates of interest, which helps reduce the burden of repayment on the borrower.
Relaxed Credit History Check

Credit history and credit score are very important taken into consideration by banks while issuing an unsecured loan (needing a minimum score of 700). A credit check being the only way a lender can assess the creditworthiness of a borrower, this is quite understandable. In the case of a loan against gold, however, Credit score becomes of very little importance.

As the lender is not faced with any difficulty recovering the loan amount, they are least concerned with a customer’s credit history. For instance HDFC bank gold loans will be sanctioned even if a borrower approaches with a credit score as low as 500. However, banks might be reluctant to agree to a deal with a customer who has a really abysmal credit history. If you are planning to apply for a gold loan, do make it a point to check your credit score beforehand.
Low Processing Fees

As unsecured loans are provided without collateral security, banks are required to invest in scrutinising your income and credit history. Hence, they will charge you an additional processing fee, which can be upto 2% of the loan amount. As these formalities do not need to be strictly followed for the purpose of a loan against gold, the borrower has the advantage of not having to shell out a lot of money for processing fees.
No Prepayment Fee

Unlike other forms of loans, the borrowers are not required to pay an additional fee for foreclosure of a loan against gold. This offers great flexibility in terms of how the borrower decides to repay the loan - either in installments or in bulk. You can also decide to pay interest and principal amounts separately.
Flexibility in Repayment

As mentioned above, even bulk repayment is an open option for borrowers of gold loans. In addition, a loan against gold can be availed in any of 4 versatile gold loan schemes, which even offers the option to repay interest and principal amounts separately!
Overdraft Facility for Sustained Funds

If you run a business, then you could get an overdraft facility loan against any gold ornaments you have in your possession. This helps meet working capital needs as and when they arise. You end up paying a simple interest only for the sum used for the given number of days. This renewable loan option is offered by a number of banks like HDFC Bank. The overdraft facility against gold can even be looked at as a very good alternative to creating an emergency fund.

Gold Loan Vs Personal Loan - Which is Better?

 With gold prices sharing such mixed market signals,  it has to be said that now could be the best time to avail a loan against gold. It is generally seen that getting a gold loan fares way better than getting the other alternative to it - personal loan. Sceptical? Well, Let’s see how a loan against gold works better than a personal loan, taking into consideration all their pros and cons.

Paperwork for personal loans is not very elaborate, as long as basic eligibility parameters are met and KYC documents are furnished. While it is true that there are few financial products that can match the  versatility and flexibility of  personal loans, the emergence of secured gold loans bodes well for the loan scape, especially under the current circumstances that warrant an unstable employment scene.

That being said, both forms of loans have a number of pros and cons to be taken into consideration in some detail before coming to a verdict on which one might be better. Read on to learn more on how the gold loan product differs from a personal loan, with all their drawbacks and advantages accounted for.
Personal Loans

A personal loan is unsecured, which means that it does not need you to pledge any asset/property (business or personal) in order to get the amount. One can get a personal loan and utilise it for a number of personal or professional requirements - to fund a wedding, getting household appliances, tackling a medical emergency, funding children’s higher education, consolidating past debts, or even going on a trip abroad!

The eligibility criteria, which is often what makes or makes or breaks the deal in case of personal loans,  incorporates numerous factors. This can include a good credit history (generally with a credit score of 700 or higher), the applicant’s age and employment status, regular monthly income, etc.

In further detail, let’s take a look for pros and cons of what a personal loan brings to the table:
The Pros of Personal Loans

- Collateral Free: If someone wants to take out a personal loan, they wouldn't have to lay down any of their personal or business assets as collateral. This makes personal loans more accessible to those who have no security to offer, but do have a regular source of income.

- Versatile: The scope of personal loans is really helpful to borrowers, as it can be used for any kind of fiscal need at an individual level. This can include consolidating past debts, paying for weddings or other big-ticket expenditure, and more.

- Simple documentation: The paperwork for availing a personal loan is quite easy, needing you to furnish your KYC documents and meet basic eligibility parameters.

- Funds Quickly Disbursed : Funds are approved and disbursal quite quickly, with many lenders crediting the amount to your account within 24-48 hours.
The Cons of Personal Loans

- Strict prerequisites (credit score and credit history): Since personal loans are not secured by collateral, banks need to be thoroughly assured of the borrower’s repayment capacity before approving a loan. For this reason, banks undertake stringent perusal of your credit management history  and present credit score to deduce your financial capability.

- Higher interest rates: As they are unsecured, lenders assess personal loans to be riskier options as against loans with security. So, personal loans draw comparatively higher rates of interest.

- Processing Fees: Since personal loans are provided without collateral security, banks are required to invest in scrutinising your income and credit history. Hence, they will charge you an additional processing fee, which can be upto 1% of the loan amount.