Taking A Gold Loan? Read This Before Making A Decision

A loan against gold, a tangible asset, preferred over a personal loan as it offers a lower interest rate.

The pandemic and the resultant lockdown impacted every household’s income, leading to a sense of financial instability. To cope with this uncertainty, most people have no choice but to pull out their savings or take loans. They have mainly two loan options — personal and gold — to meet urgent financial needs, and borrowers can decide which of the two suits them depending on their features. The rate of interest on gold loans is markedly lesser than that on personal loans although they both serve the same purpose.

A loan against gold, a tangible asset, preferred over a personal loan as it offers a lower interest rate. But opt for a gold loan when you are sure to repay the principal and interest dues within the specified duration. There are a few other things that you must consider before applying for a gold loan. They are:

1. Tenure

Gold loans are short-duration loans. Most lenders give gold loans for one year or two years. Before applying for the loan, a borrower must be ready to repay it within the specified duration.

2. Lender And Background Check

Gold loans can be availed from banks, NBFCs, or even jewellers. Banks are trustworthy sources, but the other two types of lenders require a thorough background check. Jewellers and NBFCs may offer a lower interest rate compared to banks but a borrower must trust them before taking a loan from them to minimise their risk of being defrauded.

3. Loan Amount

No lender will give you a 100 per cent loan amount against the gold value. The amount can be as low as 60 per cent or can go up to 85-90 per cent of the actual value of the yellow metal, depending on the lender’s policies.

4. Repayment Process

A general agreement on the process is that a borrower pays regular EMIs. Once the loan tenure ends and all remaining dues are cleared, the gold offered as collateral is returned back to the borrower.

5. Processing Fee

This is the fee the lender charges when processing your loan. It can be around 2 per cent of the loan amount. Some lenders may also charge a flat fee. Borrowers should check with the lender about the fee structure and rate.