What is Gold Loan and how does it work?

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Gold loan is a type of secured loan where gold is pledged as security for the loan amount. The gold loan is kept in a secure locker by the banks or gold lending institutions till the time the loan is repaid. Gold is emergency and short-term, given for a short period of time. It is like an emergency fund, which is useful in any emergency, which is available at low interest. It may be needed for higher education, marriage, home repair, medical emergency, travel, downpayment etc. Due to its high valuation, gold can be converted into cash in a very short time. In such an emergency, a gold loan is the best option to meet the money requirement. Gold loan is available on the basis of purity and value of gold.

Financial experts say that taking a gold loan in case of emergency is better than taking a personal loan. Personal loans have higher interest rates, while gold loans have slightly lower interest rates. It is a flexible loan with low interest rate, easy to get with easy processing. There is no need to provide more documents or proofs. Due to the high valuation of gold, loans are easily available up to 75 percent of its market value.

How is the market value of your gold determined?

When you take your gold to the bank or NBFC from where you want to take a gold loan, they check the purity of your gold. They calculate gold according to its weight, purity and market value. Thereafter, the loan amount is decided based on the market value of the jewelry as on the date you applied for the gold loan. If you pledge gold ornaments, then only the gold portion in it is assessed. Its stones and other gems are not included in this assessment. If you take a loan by pledging 24 carat gold coins, then these coins should be issued by the bank. If you have bought these coins from a goldsmith, then they will not be valid.

Can I pledge jewelery on special occasions?

If you have a wedding at your home or you are planning to visit a relative or family member, you can take some time to get your jewelery pledged for gold loan. However, not all banks or all financial institutions provide such facility, but some do. Before applying for a gold loan, you can get information about this facility from your bank or financial institution.

How to get Gold Loan?

You need to carry your gold (gold coins, jewelry or biscuits, whatever) while applying for a gold loan. After this the bank employees do the valuation of your gold. However, during this pandemic like COVID-19, some NBFCs and banks are sending their executives at the applicant’s doorstep. These executives appraise these jewelery at your home and complete the loan process after collecting the required documents. Apart from this, you can also apply for a gold loan online on the bank’s website.

What are the documents required for Gold Loan?

To apply for a gold loan, you will need an Aadhar card or PAN as an identity proof. For address proof, you have to pay electricity bill or telephone bill. Apart from this, you will also have to provide your photographs. If the bank or lending institution says, then you may also have to provide your income proof.

What are the charges to be paid for Gold Loan?

Some banks charge a processing fee and GST of up to 1.5 per cent on the loan amount. You have to pay this amount before getting the loan amount. Apart from this, banks also charge valuation fees. This fee is levied by the banks in lieu of extracting the value of your gold.

What happens if the gold loan is not paid?

If you fail to repay your gold loan in a timely manner, the bank or lending institution sends you a follow-up reminder and levies a late payment fee as a penalty. Most banks charge a late fee of 2 percent per annum in addition to the interest rate.

If you do not repay the loan despite reminders, your gold pledged becomes legally empowered by the lending bank or financial company and they can confiscate the same. Banks or financial institutions can auction this gold and recover their dues. This negatively affects your credit history and CIBIL score.

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