In India, gold has long been considered as not just a precious metal but also a symbol of wealth and security. Over the years, the concept of gold loans has gained significant popularity as a reliable means of obtaining quick and hassle-free financial assistance against gold ornaments and jewellery. Initially, the gold loan market was unorganized with loan sharks naming steep terms for gold loans, but with the entry of numerous established NBFCs in the market, gold loans became a transparent and hassle-free financial solution.
Here are some important facts about gold loans in India that you should know, from the intricacies of application and how gold work to the loan transfer process loans:
What is a Gold Loan?
A gold loan is a secured loan where individuals pledge the gold they own as collateral to avail funds from financial institutions like banks or non-banking financial companies (NBFCs). The loan amount sanctioned is typically based on the gold's appraised value, with lenders offering up to 90% LTV.
How Does a Gold Loan Work?
The process of obtaining a gold loan is relatively straightforward. Here is a step-by-step breakdown of how it works:
- Gold Valuation
The first step involves determining the purity and weight of the gold being pledged by the borrower. Trained appraisers calculate its value based on the current market rate of gold.
- Loan Amount Approval
Once the gold's value has been ascertained, the lender informs the borrower about the maximum amount of money that they can avail as a loan based on the pledged gold's value. The amount is generally up to 90% of the total value of the gold.
- Documentation
Compared to other types of loans, a gold loan requires minimal KYC documentation. The borrower needs to provide identity proof, address proof, and a few basic details. In most cases, an Aadhaar card, voter ID card, passport, driver's license, or any other government-issued photo ID is acceptable.
- Loan Disbursement
After the valuation and documentation, the loan amount is disbursed to the borrower in a quick time. It's important to note here that the loan is sanctioned against the gold being pledged, and is not based on the borrower's creditworthiness, which makes gold loans a highly accessible option for individuals with varying credit scores.
- Repayment
Gold loans typically have shorter tenures, ranging from a few months to a few years. However, borrowers have ample choice in the form of various schemes that they can choose from. They also have flexible repayment options, like monthly interest payments, a lump sum payment at the end of the tenure, interest payment post principal payment, etc.
Getting a Gold Loan at Home
Today, borrowers also have the choice to opt for gold loan at-home services, where they are visited by a representative from the lender at their home. The entire valuation, documentation, and disbursal process is done in a single sitting, and the representative waits until the loan is disbursed before securely transferring the pledged gold for safekeeping during the loan tenure.
The Loan Transfer Process and Gold Loan TakeOver
The loan transfer process or "gold loan takeover" can be opted by borrowers to transfer their loan to a different vendor in cases where they are being offered more favorable terms/
The process of loan transfer involves the following steps:
- Research:
To identify lenders offering more favourable terms.
- Application with New Lender:
An application must be made, specifying the intention of transferring an existing loan.
- Approval:
Taking into account the outstanding interest from the existing loan and gold valuation, the application is approved.
- Settlement
On payment of the outstanding interest to the current lender, the loan transfer process is completed.
Gold loans are a reliable and convenient financial instrument for overcoming unforeseen circumstances.