Thousands and thousands of individuals in India prefer availing a gold loan in order to arrange funds for various reasons. Since a gold loan is a secured loan, it can be availed at a low interest rate. Therefore, it is a better alternative compared to a personal loan.
Read on to know more about gold loans.
A gold loan is a great way to borrow money in case of an emergency. Generally, the loan amount is disbursed quickly. Also, the documentation process to avail a gold loan is minimal.
In order to avail a gold loan, a borrower must keep his/her gold asset(s) as collateral. Before providing the loan amount, the bank will check the market value of the gold. The bank will return the gold once the borrower repays the principal amount and the interest amount.
Gold loans can be taken to manage a cash crunch. An individual can borrow a gold loan to meet a short-term credit requirement like a medical emergency, a wedding ceremony, a child’s education, etc.
Benefits of Availing a Gold Loan
There are many advantages of availing a gold loan such as-
- The documentation process to apply for a gold loan doesn’t require a lot of efforts. You only need to submit a few documents in order to apply for it.
- In comparison to a personal loan, a gold loan can be availed at a lower interest rate.
- You don’t need to provide income proof to avail a gold loan.
- Generally, banks disburse the loan amount in a very short time.
Mistakes to Avoid While Applying for a Gold Loan
Let’s look at some mistakes that gold loan applicants need to avoid-
- Ignoring Processing Fees
Many loan applicants fail to notice the processing fees. However, most banks levy this fee while providing a gold loan. There are some banks that charge processing fees based on the loan amount. Meanwhile, others levy a fixed processing fee.
- Not Comparing Repayment Options
One of the best benefits of availing a gold loan is the flexibility it offers for loan repayment. Borrowers can repay the loan in EMIs, or they can customise another option based on their repayment capacity.
There are many banks that allow the borrowers to repay the interest part every month and the principal amount at the end of the tenure. Meanwhile, others allow the borrowers to repay the principal amount as well as the interest on the maturity date.
- Not Paying Attention to Repayment Capacity
Borrowers must repay their loan in time in order to not lose their pledged gold. The banks have the right to sell a borrower’s gold asset(s) to recover the loan amount.
Therefore, applicants must consider their repayment capacity while applying for a gold loan. They should opt for a shorter loan term only if they have the financial resources to repay the loan in time.
In conclusion, a gold loan is a better choice compared to other types of unsecured loans. It can be availed quickly at a lower interest rate.