Key Features & Benefits of a Gold Loan

05 Sep 2022

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When you require funds urgently, you can consider using your gold as collateral to obtain the funds your need. Gold Loans are secured loans offered by most banks and non-banking financial companies (NBFC). The lender assesses the current market value of the gold and determines the loan amount. Such a loan helps you get access to cash instantly. Let us analyse the various features and benefits of Gold Loans, the loan application process, and more. Read on.

Features of a Gold Loan

The salient features of Gold Loans include the following:

• Attractive interest rates:

Since Gold Loans are secured, lenders levy lower interest rates than those charged on unsecured loans.

• No credit score & income proof requirements:

Lenders do not require your credit scores and monthly income information to sanction Gold Loans. They determine the loan value based on the gold pledged as collateral.

• Safety of the pledged gold:

Lenders safeguard your pledged gold by storing it in heavy-duty vaults. They return it to you once you repay the loan.

• Loan-to-value (LTV):

The Reserve Bank of India (RBI) has capped the LTV ratio at 75%. So, if you pledge gold worth Rs 1 Lakh, you can get a maximum of Rs 75,000 as Gold Loan.

• Minimal paperwork:

You can apply for Gold Loans with minimal documentation like ID and address proof to complete the Know Your Client (KYC) process. Lenders do not require your income proof or bank statements to assess your eligibility.

• Versatile end usage:

You can use the loan amount to finance any expense without worrying about any end-use restrictions.

• Faster processing:

You can get the funds you need within minutes. The lender weighs the gold and disburses the loan amount instantly.

• Zero foreclosure or prepayment charges:

You can repay your Gold Loan interest and principal amount at any time without worrying about foreclosure or prepayment charges.

Step-by-Step Procedure to Apply for a Gold Loan

Below are the steps you need to follow when you apply for a Gold Loan.

1. Select A Lender

The first step in the Gold Loan process is to select your preferred lender. Ensure you choose a reputed lender who safeguards your assets and returns them at the end of the loan tenure.

2. Gold Evaluation

Once you have chosen your preferred lender, you must get your gold evaluated. Different lenders offer different evaluation options. You can visit the lender's branch for evaluation. An Assayer weighs the gold and conducts the KYC process. The lender then informs you of the loan amount you can get, the interest rate applicable on the loan, and the repayment terms. Lenders determine the gold value by taking the average of one gram gold price for one month. They can disburse a maximum of 75% of the total Gold Loan value. You can use a Gold Loan Calculator to compute the amount of Gold Loan per gram.

3. Assess the Repayment Terms

Lenders allow you to repay only the interest component of the Gold Loan during the loan tenure. You can repay the principal amount in lumpsum once the Gold Loan tenure ends or anytime in between. This payment method is also known as bullet payment. Most lenders offer a one-year repayment period on Gold Loans.

4. Loan Amount Disbursal

Loan disbursal is the next step in the Gold Loan process. Once you agree to the proposed Gold Loan terms, the lender credits the loan amount to your bank account.

What Are The Benefits of Taking A Gold Loan?

There are numerous benefits of Gold Loans that make it an attractive financing option for borrowers. The most popular ones include the following.

• Secured Loan benefits

Most Loans are either secured or unsecured. Unsecured loans require no collateral, but you have to fulfil stringent eligibility criteria. Since a Gold loan is a secured loan, lenders require collateral. However, they typically sanction the loan easily. You do not have to show income proof to obtain high-value loans. Plus, lenders levy a lower interest rate due to the pledged gold.

• No need for credit score

The only condition you need to comply with when you apply for a Gold Loan is that you must possess gold in the form of, coins, jewellery, etc. You can obtain the loan even if your credit score is low. In fact, many Gold Loan lenders do not insist on credit scores, contributing to the immense popularity of these loans.

• Reusing the same gold repeatedly

Once you have repaid and got back your Gold, you can use the same gold to obtain another loan. Since the Gold Loan amount is based on the gold's market value, you can even get a higher loan amount if the gold price rises.

• Flexible repayment terms

Gold Loans are not amortized, i.e., you need not pay the interest component and principal amount in every EMI. Instead, you may only repay the interest component in EMIs during the loan tenure and pay off the principal loan amount as a lump sum when the loan matures. This attribute makes a Gold Loan an excellent, pocket-friendly option. Moreover, you can also prepay the principal amount partially during the loan tenure and reduce your interest amount.

Consequences Of Not Repaying A Gold Loan

While there are several benefits of Gold Loans, and the loan is easy to obtain, you must ensure you repay it on time and in full. If you fail to repay your Gold Loan, you must brace for the following consequences.

• Persistent reminders:

Lenders generally send repeated reminders via calls, SMS, emails, and notices to borrowers who fail to repay the Gold Loan.

• Penal interest charge:

Lenders may levy penalties if you fail to repay the interest on the loan during the stipulated loan term.

• Possibility of legal action by the lender:

Lenders may also send a legal notice if you do not respond and make payments despite the repeated reminders sent to you.

• Gold auction:

If nothing else works out, the only remaining course of action the lender resorts to is auctioning your gold to recover or offset the losses incurred from the loan. Lenders typically inform you about the auction two weeks prior to the auction date.

• Impacts your creditworthiness:

Lenders do not ask for your credit score when you apply for a Gold Loan. However, non-repayment of the debt can impact your credit score and your subsequent credit-obtaining abilities.

Dos & Don'ts While Opting for Gold Loan

What to do:

• Check your gold's purity:

Lenders accept gold of a minimum of 18 carats. While lenders take the necessary measures to ascertain the gold's purity, it helps if you check the same before approaching the lender.

• Check lender credibility:

With Gold Loans, you must entrust the gold purchased with your hard-earned money to a stranger. Therefore, you must assess the lender's credibility before pledging your assets.

What not to Do:

Neglecting the LTV factor:

The RBI has capped the LTV ratio at 75%. Do not expect the lender to offer more funds than the LTV, as it can lead to loan rejection.

Delaying repayments:

Delay or non-repayment of your Gold Loan results in you losing your gold. It also reduces your credit score significantly.

Apply for Gold Loans with Bank of Baroda

Now you can seamlessly apply for Gold Loans with Bank of Baroda. At Bank of Baroda, we offer Gold Loans of up to Rs 25 Lakh. You can enjoy competitive interest rates and flexible repayment terms on our loans. We also offer concessional interest rates to women borrowers. Call our toll-free number 1800 5700 or visit your nearest Bank of Baroda branch for further assistance.

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