Gold loan is a financial product that makes gold a liquid investment, even before being sold. People tend to apply for gold loans when they are either in urgent need of money or have excessive investments in said metal, and to avail a gold loan, one does not necessarily need to be the possessor, some of the basic requirements for applying for a gold loan are:
Submission of KYC documents
- Identity proof
- People in the age bracket of 21 - 70 are mostly eligible
- There must be a consistent periodic flow of finance
While there are many positives and a few negatives associated with the gold loan, Yes Bank gold loan helps meet financial requirements with ease and sets apart when it comes to advantages. Here are a few advantages of availing of a gold loan:
It is a secured loan
To avail a gold loan, one is not adhered to render any other asset than gold. The loan is legally secured against gold, and banks usually grant the loan of around 75% of what the current market value of one’s gold is.
The interest rate is low.
Interest rates on gold loans are comparatively lower than other types of loans, which is mainly because the collateral is gold itself.
Easy application and verification
Availing of a gold loan is a matter of minutes these days. People with legitimate bank accounts have the facility to apply for loans online, and a gold loan is no exception. Though the applicant is required to hand over gold as collateral for the loan, the verification is done by the bank. It generally takes around one day to verify the purity of gold.
Limited documents required for verification
Though the list of documents required to apply for a gold loan varies across institutions and banks, some of the common documents needed are:
- Identity proof
- Residence address proof (includes passport, electricity bill)
The usage of the money is subject to the customer who has availed of the loan
The best aspect of availing a gold loan is that unlike a car loan or a home loan or an education loan for that matter, money that one gets by availing the loan can be used for any purpose (lawful). It can be used for education, wedding, personal requirements, construction purposes, and many other instances.
Liquidates illiquid asset- As mentioned above, gold is an illiquid asset which people perceive as a locked investment until they sell it at any market price (which may be lower or higher when compared to the purchase cost of gold). Gold is an idle asset, which provides the best resort when it comes to raising capital, and all other doors are locked.
People may also sell gold and get their requirements fulfilled, but with that, they also lose ownership of the metal. Therefore, a gold loan is beneficial as one gets the amount required while holding power to get the ownership back after repayment of the entire sum (including interest).
Closure of the loan- If one is unable to pay the loan, it can be foreclosed for free or sometimes require one to pay around 2-4% of the outstanding amount (excluding interest). Note- The foreclosure takes the ownership of gold permanently.
While there are many advantages of a gold loan, defaults in repaying the loan back can still lead to negative downfalls. If one exceeds the stipulated time frame of repayment and continues the same for long, the bank increases the interest rate and releases a notice of warning, which announces the time within which one has to pay the outstanding amount back.
This is the only downside of a gold loan, but since a rational loan is always taken with the idea of repaying the principal amount back along with interest, it is not a concern for repayers.
Repaying a gold loan on time also increases credit rating, credit score and adds credibility to the customer profile for future grants and fund requirements.