In India, people have certain emotions attached to gold assets they own. People do not prefer to take loan against gold jewelry despite the fact that gold loan was in practice centuries back, under unorganized sector (moneylenders). There has been a significant increase in the value of gold in the past one century which has made the current price of the yellow metal too high. A gram of gold can cost up to Rs. 40,000 when the gold prices are at the peak.
This makes it a prudent call to go for a gold loan instead of a personal loan, the latter which comprises of a higher rate of interest. But rather, it is best to opt for personal loans against gold. The Indian households can approach financial institutions including banks to avail a loan on pledged gold assets.
What is a Personal Loan against Gold?
The practice of lending against gold started from moneylenders in India. A personal loan against gold is not new to the Indian society. It was undertaken by landlord and businesspersons, and not reintroduced in a transparent matter by banks and NBFCs. The application process is very simple. One has to deposit gold asset with the lender and after valuation of the jewelry/ gold, loan up to a maximum of 75% of the value of gold is granted to the borrower.
Documents Required Applying for the Loan
The process is accompanied by submission of KYC documents viz. PAN card, ID proof and address proof. Having a full/ additional value security attached to the loan, it makes personal loan against gold cheaper than pure personal loan (unsecured borrowing).
Time Taken for Disbursal of Funds
Talking about the processing time, again it is shorter in case of such loan than other secured loans, such as a home loan or a loan against property. You can get funds against gold assets the same-day of the loan approval. While the mentioned secured loan counterparts can take weeks for amount disbursal.
Difference between Personal Gold Loan and Unsecured Personal Loan
Below-mentioned are key differences between secured gold loan and a conventional personal loan:
The former is fully secured as gold is deposited by the borrower with the bank. In unsecured borrowing, no collateral is needed.
In most of the cases, the repayment period is from 6 months to 2 years, while an unsecured personal loan can be for up to 5 years.
The repaying capacity of the borrower is of no importance to the lender (bank) since the amount and delivery of personal loans against gold purely depend upon the value of gold which is being pledged with the bank/ financial institution.
The interest rate for such loans (10.50% to 13.50%) is lower than the unsecured personal loan (10.99% to 24% or more)
Key Benefits of Personal Loan against Gold
Below-mentioned are advantages of gold loan for personal needs:
Documentation is minimal, along with decrease in processing time of the loan.
There are emotions attached with gold, hence the chances of making a default are quite less as every borrower will try not to lose his/ her household jewelry/ gold. Thus, people will usually repay the loan in time.
Rate of interest is quite reasonable as against unsecured loans.
There is a provision of paying just the interest portion of the loan within the tenure while the principal portion can be paid at the end of the period. This reduces the borrower’s burden substantially.
To Conclude
Taking a personal gold loan is now a common practice in India which empowers people to utilize the gold kept idle in locker, and save money by paying lesser rate of interest, as they would against other forms of borrowings.
