In a world where the pandemic is taking its toll, one thing has become exceedingly difficult to come by: money. The inadequacy of cash has led to a rise in people taking out loans, a trend that has been seen all around the world. As a result, there has been an unexpected increase in demand for gold loans. It is a type of loan that is secured by gold jewelry. And it is one option that you should explore. Here are the procedure, merits, and demerits of a gold loan.
What is Gold Loan?
It is a process of getting funds through pledging your gold ornament at any bank or NBFC (Non-Banking Financial Companies). Customers get the flexibility to use the funds freely. So they can use it for various purposes like weddings, family vacations, debt consolidation, medical expenses, child's education fees, miscellaneous expenses, etc.
Borrowers have to repay the amount they've borrowed along with the interest rate. So missing the installment for 30 days can lead to a penalty and a late payment fee and delaying the Muthoot Gold Loan Payment by even a single day can affect your credit score heavily.
Merits of Gold Loan
- Flexibility: Borrowers have the complete flexibility to use the funds they've borrowed through gold loans freely. So they can use the funds for multiple purposes at the same time. However, customers can't use the funds they've borrowed for any illegal practices.
- Documentation: The complete documentation process of gold loans is speedy, simple, and easy. Unlike any other loan, you don't have to submit a bundle of paperwork.
- Repayment: Customers have the flexibility to choose a repayment structure according to their income and budget. They can calculate their expenses beforehand and then choose a tenure and structure according to their repayment capacity. You can even use some online tools like the Gold Loan Calculator
Gold Loan Procedure
Customers can apply for a gold loan facility using both online and offline methods. We've mentioned the entire process of both methods below:
Online Mode
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1. The first step is to visit the bank's website and read everything related to the gold loan facility they're offering.
2. The second important thing is to check their eligibility criteria. A lot of banks mention their eligibility criteria on the homepage. So you can check whether or not you fit into that criteria perfectly.
3. If you are eligible according to the bank's eligibility criteria, you can move ahead with the application form. Here you'll have to fill the application form and attach some essential KYC documents required by the bank.
4. After you've submitted all the documents, you can click on the 'submit now button.
5. The bank will then send someone from their nearest branch to measure your gold ornaments' weight and purity. This valuation will determine the loan amount you'll get.
6. After the loan amount is decided by the bank will then list out all the terms and conditions regarding other gold loan factors.
7. If you agree to all the conditions stated by the bank, then you can move ahead and sign the documents.
8. The loan amount borrowed will be disbursed to your bank account within 30 minutes.Offline Mode
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1. Visit the most neighboring bank branch and ask for an application form. Fill out all the necessary details asked by the bank in that form.
2. Then you'll have to attach some essential KYC documents and submit them to the bank manager.
3. The manager will then value your gold ornament according to its current rate.
4. After the loan amount is decided by the bank will then list out all the terms and conditions regarding other gold loan factors.
5. Once you've agreed to all the terms and conditions, the bank will then disburse the loan amount to your bank account within 30 minutes.Demerits of Gold Loan
- LTV Rate: Banks don't give 100% of the amount for your gold ornaments. The maximum LTV (Loan to Value) rate that you can get is 75% to 85%. So if you're pledging gold with a market value of INR 50,000, then you'll only get INR 40,000 as a loan.
- Loan default: If the borrower can't repay the principal amount, then the bank will have every right to seize the gold ornament and sell it at an auction to recover the loan amount.
Conclusion
The gold loan has both merits and demerits, but it is an ideal loan option if you're looking to get funds through pledging your gold ornament.
Also read this: Gold Loan For Rural Areas