What is Gold Loan and How Does a Gold Loan Work?

Gold is considered a safe investment in India. Indians love investing in gold as they can sell it to get cash in difficult times. Some people attach emotional value to gold and thus prefer to get a loan on it.In this blog, you will learn all about a gold loan, interest rates, charges, tenure, eligibility, and required documents.

• A gold loan is a secured loan where you pledge gold for cash.
• You can get a loan on gold from banks, non-banking financial institutions, fintech companies, or your neighbourhood jeweller.
• A gold loan is quickly and easily available at lower interest rates.
• It offers flexible repayment terms to suit your financial needs.

A gold loan is a secured loan in which you can borrow cash while keeping your gold as a pledge or collateral. The loan amount is decided based on the current value of your gold.It offers a simple and fast method of meeting your financial needs. Due to the collateral, it requires minimal documentation and is available at lower interest ratesYou can get a gold loan in India through various public and private banks, non-banking financial corporations(NBFCs), fintech platforms, and neighbourhood jewellers

The gold loan works like any other secured loan

• You contact a lender with the gold you want to pledge and the required documents
• The lender checks the gold and the papers and assesses the gold’s value
• If you agree with the loan amount and other terms and conditions, the lender approves the loan, takes possession of the gold, and disburses the money
• You repay the principal and interest according to the loan terms
• Upon complete repayment, you receive your gold back.

Due to the collateral involved, a loan on gold can be obtained at lower interest rates. The interest rate depends on factors such as the lender's nature and loan term. For example, banks charge lower interest than NBFCs. The interest rate may vary from 7 to 29% annually, depending on the lender.Similarly, the loan tenure varies with lenders. It is typically for three months to several years. However, some lenders offer the option of loan extension if needed.You may need to pay some additional charges for a loan on gold compared to a personal loan. For example, gold valuation charges, administration charges, documentation fees, etc. Also read : Gold Loan VS Personal Loan: Know Before You Choose

To be eligible to avail of a loan on gold, you must be:

• An Indian citizen aged between 21 to 70 years.
• The gold must have a purity of 18-24 karat.
• You have the purchase documents for the gold you plan to pledge

To get a loan on gold, you require the following documents:

• Identity Proof: Aadhar card/ PAN (permanent account number) card / Passport/ Voter ID/ Driving licence.
• Address Proof: Aadhar card/ Passport/ Voter ID/ Driving licence/ Ration card/ Utility bills.
• Recent passport-size photographs.
• Ownership Proof: Invoice/ Purchase Receipt of the gold item to be pledged.
• Bank Account details.

It offers certain benefits over a personal loan:

• Lower Interest Rates: Due to the secured nature, it offers lower interest rates, reducing your cost of borrowing.
• Fast Disbursal: It is one of the quickest loans, making it optimal in emergencies like medical issues, education, etc.
• No Credit Checks Required: You do not need a good CIBIL score to get a loan on gold as long as you possess the gold.
• Repayment Flexibility: You can choose a flexible repayment plan for your loan by returning the total loan amount as lumpsum or through equated monthly instalments (EMIs).

Also Read : What are the Tax Benefits on Gold Loan?

A gold loan can be a boon for you if you need financial assistance. Loan against gold meaning is simple. You pledge your gold to a lender who provides you money at predetermined terms and conditions. You can redeem your gold upon fully repaying the principal and the interest.In need of a loan but do not have collateral? Connect with Aditya Birla Capital to get affordable personal loans