There is no way to predict a financial emergency. Everybody comes across unexpected situations that create a need for urgent money. Unpredictable events like the sudden illness of a family member and hospitalization, job loss, or breakdown of a home appliance or vehicle can put a strain on your finances.
You may find several options available when in need of some quick cash, including a personal loan and borrowing from friends and family. However, depending on your needs, you may prefer an emergency loan that demands fewer documents and is quick and easy. One such convenient option is Gold Loan.
Let us try to understand what a gold loan is exactly, how it is a more practical solution for emergency financial needs, and how you can obtain one if you need quick funds.
What is a Gold Loan?
A gold loan or a loan against gold is a type of secured loan a lender gives for pledging the gold as collateral. Most people have gold in the form of coins or jewelry and generally keep it idle in the locker. Financial institutions sanction a percentage of the total value of the gold ornaments or coins a loan amount to a borrower for emergency funds.
Just like any other secured loan, you can pay back the amount as installments and receive your belongings back. Unlike a car or home loan, a gold loan finance option does not put any restriction on the use of money. So, whether you want to fund a vacation, a wedding, or your child’s education, a gold loan is the perfect way to meet emergency monetary requirements.
While a personal loan is easy to obtain in many cases, there are several requirements you must fulfill to be eligible. Being an unsecured loan, the lender first verifies your income, financial conditions, and credit history before sanctioning the fund. There is a chance you are charged a high rate of interest if you don’t match the criteria.
As opposed to this, a gold loan is a more convenient option as it is a secured loan. The only requirement to get a guaranteed fund is that your gold meets the lender’s standards. As you are pledging your asset with the lender, your credit history doesn’t matter as well. Most private and nationalized banks and finance companies offer up to 75-90 percent of the total value of the gold at affordable interest rates.
Benefits of a Gold Loan
A gold loan scheme is a more practical choice when considering the options available for a financial emergency. Gold loans are ideal for a number of reasons including:
Low Rate of Interest
As gold loans are secured, they have a lower rate of interest as compared to other types of loans in the market. The lender can auction the pledged gold assets to recover the amount if the borrower defaults. Low gold loan interest rate helps avoid any debt trap, reduces the total repayment amount, and makes it easy to pay back the emergency fund without having to resort to additional loans or debts.
Gold loans are one of those emergency loans with minimum documentation requirements. The applicant just needs to submit the gold to the financial institution and the loan is instantly processed. The entire procedure is often completed within 24-48 hours.
Higher Sanction Amounts
Gold loans generally offered by banks and institutions have a loan-to-value ratio of up to 75%. This means you can obtain up to Rs. 75,000 if you can pledge gold assets worth Rs. 1 lakh. Recently, the RBI has revised the limit to up to 90% which means you can now get up to Rs. 90,000 for gold worth Rs. 1 lakh.
No Need of Income Proof
The most impressive benefit of Best gold loan is that you need not produce proof of income to obtain it. While some other options like personal loans need a confirmation that you earn enough to repay the loan amount, gold loans are secured by your assets which can be auctioned or sold in case the borrower fails to repay. So, if you don’t have income proof, a gold loan is a great option for your financial emergencies.
A gold loan scheme gives you multiple repayment options to select the one that suits your financial condition. The options you get depends on your lender. Most institutions today require that you pay the interest amount every month and the principal amount at the end of the tenor. You can even choose to repay your loan as monthly installments accounting for a certain amount of principal and interest.
How A Gold Loan Works?
The process of a gold loan is much similar to any other secured loan. The borrower should visit the lender facility along with KYC documents and gold assets. The institution determines the value of the gold and sanctions a loan amount. The gold is kept in safe custody with the lender and the amount is transferred to the applicant’s account.
The loan amount sanctioned depends on the Loan-to-Value ratio (LTV) decided by the RBI. It is the amount you can get for the value of your assets and no institution can give you a loan amount greater than the LTV. It was set at 75% by the RBI earlier which is recently revised to 90%. A higher LTV is quite useful when you are facing financial pressure.
Anybody can get a gold loan, without meeting any requirements, if he/she has gold ornaments or coins to pledge for it. Gold loans can be availed by any Indian resident for financial emergencies even if the credit score is low.