When a person needs to cover financial emergencies to fulfil any short-term financial goal and requires funds instantly, getting a gold loan can be a good move. A gold loan implies that a person can apply for a loan from any bank or non-banking financial company by keeping gold articles as collateral. This is called a secured loan as the collateral pledged by the borrower helps him get a lower interest rate and aids the creditor with the assurance that if the borrower makes any default, the creditor can also liquidate gold quickly. The quality of the gold must be within the range of 18 to 24 carats, and the approval of the loan application is directly dependent on the quality and weight of the gold. Therefore, the gold loan per gram will be dependent on the prevailing market price of gold and the quality and weight of the gold secured for gold loans.
Generally, the lenders provide gold loans up to 75% of the market price of the gold kept as security as per the guidelines of The Reserve Bank of India. So people who want to get a short term personal finance goal fulfilled can take a gold loan with a lower interest rate from banks and Financial Institutions. Till March 31st, 2021 Reserve Bank of India enhanced the loan to value ratio and allowed Banks to provide their customers with 90% of the gold value
witnessing the demand for a gold loan and the financial crisis the country was going through.
The foremost reason for a gold loan being economical with less interest is the borrower’s security. Gold is kept as collateral, and everybody knows the value of it. Therefore the creditor faces no stress of the borrower making default. On the contrary, the borrower will try his level best to repay the loan and get his precious gold assets back, and on the other hand, the creditor will face no extra pressure to make good of his loss. Simply, he will furnish notice to the borrower, and after multiple notices of the creditor, if the borrower does not turn up, the creditors can quickly auction the gold pledged.
Secured loans like a gold loan, home loan, car loan or loans against fixed deposit require collateral or any other security to be kept with the lending institution. On the other hand, unsecured personal loans require no security and attract a comparatively higher interest than the secured ones. The justification behind taking up a loan with lower interest rates is to minimise the monthly instalment to be paid while repaying the loan amount. However, the interest rates usually tend to be on the higher side in unsecured loans because the creditors want to decrease the credit risk as no collateral is kept against the loan amount. But the affordable loan option can vary from one individual to depending upon their requirement of funds, processing fees charged, hidden charges(if any), flexible repayment options, or other benefits.
Among the commercial banks, Punjab National Bank and Sind Bank, Bank of India and Canara Bank are presently promising to offer the lowest rate of gold loans. Government sector banks provide low-interest rates on gold loans depending on the loan amount and the quality of the gold pledged against it. Some leading sectors of private banks of India, like HDFC Bank and Dhanalakshmi Bank, offer the best interest rates on gold loans. Finally, the Non-Banking Financial Companies, like IIFL Finance, Bajaj Finance Limited, Muthoot Finance, and Manappuram Gold loan, are pocket-friendly. So, prior calculation and assessment of different loan schemes in the market can help a person choose a prudent gold loan that can put minimal economic pressure.
Also read this: Gold Loan For Wedding
This is called a secured loan.
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