In circumstances where you need funds urgently for a particular need, taking out a loan could very well be the first thought on your mind. But even so, what loan should you take? Which kind of loan can be availed instantly and without much hassle, such that your need can be met with immediately? What loan would be low risk, and also offer low interest rates? Can you get flexible repayment options?
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.
