Whenever we do not meet for a personal loan, we are likely to go with a gold loan. Gold ornaments are valuable in India, and you qualify to take a loan against gold. Secure your loan against gold from Rs. 3,000 to Rs. 1.5 crore. But before taking a loan, let’s know about the advantages and disadvantages of a gold loan.
What is a Gold Loan?
A gold loan is a secured loan that requires be deposited in the bank. The gold may be jewelry or coins. Banks will give you a 75% loan of the gold asset value. The borrower may obtain a gold loan for short-term or long-term. After paying the loan amount, the gold will be delivered to the borrower.
Advantages of a Gold Loan
Obtaining a gold loan comes with some advantages. Before going with a gold loan, look at the following advantages:
Quick Fund Transfer: Swift processing makes it easier for borrowers. Other forms of loans take time to transfer your funds. But a gold loan is the fastest fund transfer procedure with a minimal document list.
Cheap Interest: If you compare personal business or credit card loan interest, a gold loan will be a winner. Gold is a secured loan, meanwhile lender offers lower rates of interest.
Zero Credit Check: Individuals with lower credit scores are eligible for gold loans. As lenders provide gold loans without credit checks, you may take these benefits and increase your CIBIL score.
Repayment Flexibility: Gold loan repayment tenure is flexible, which 3 months to 48 months. Also, give only the interest rate if you are not paying the principal amount.
Fast Process: Whenever a personal loan takes up to 5 days, a gold loan takes 24 hours. The lender’s gold loan process is speedy, which is one of the primary benefits for borrowers.
No Income Proof: The lender does not take income proof for gold loans. This is zero proof loan eligibility.
Also Read: IIFL Gold Loan
Disadvantages of Gold Loan
Moreover, the gold loan comes with some disadvantages. Let’s see the disadvantages from the list below:
Loose Gold: You will lose ornaments if you fail to repay the loan. This is one of the major disadvantages of gold loans.
Loan Tenure: The gold loan is a short-term loan tenure. If you compare it with a home loan or mortgage loan, comparatively gold loan comparatively comes with a lower tenure.
Loan-to-Value Ratio: Lenders calculate the LTV (Loan-to-Value) ratio whenever pledging gold. The borrower may get up to 80% loan of the market value of gold. Let’s take an example, you have 1 lakh amount of gold. But the bank will give you 80%, which is an 80,000 loan of your gold value.
Hit on Credit Score: Gold loan does not directly impact on credit score. But it will badly affect you if you do not pay the loan on time, and the lender may take legal action against you.
Multiply Interest: However, gold loan interest is lower; the interest multiplies if the borrower does not pay the loan within a fixed time frame.
Also Read: Rupeek Gold Loan
Bottom Line
Before pledging a gold loan, you should be aware of the pros and cons of a gold loan. By taking a gold loan, you may solve urgent cash problems and improve your lifestyle. Individuals with no income proof documents can obtain gold loans without a burden.
With flexible tenure, borrowers may fulfill financial needs and upgrade basic needs.