What are the Advantages of Taking a Loan Against Gold?

Last Updated : May 21, 2020, 11:32 a.m.

Taking a loan against gold is one thing that has not started today but has been in the Indian culture even before banks and other financial institutions were in existence. The only difference between then and now is that in the current times, this facility has become a lot more secure and convenient. With the loan against the gold facility, you can get the required loan amount in times of financial crisis. You just need to submit your gold ornaments and coins to the lender, and based on the value of your gold, your loan amount will be decided.

A loan against the gold comes under the secured loan category. As a result, you can get the same at affordable interest rates from several banks and financial institutions. If you are someone who has quite an amount of unutilized gold at home and looking to get funds against this gold, a loan against a gold facility can be a wise option for you. If you want to know about the advantages of a gold loan, this article could be a good read for you!

Some of the advantages of taking a loan against gold include lower interest rates, flexible repayment options, minimal documentation. Let’s check out these advantages in detail.

Lower Interest Rates

One of the key advantages of taking a loan against gold is the affordable interest rates you get on the same. The reason behind the low interest rates is the secured nature of the loan facility. Your gold ornaments and gold coins (whatever you choose to submit) will act as the collateral or security against your loan amount. So, lenders have a much lesser credit risk when extending gold loans to individuals.

If you have a good existing relationship with your lender, the interest rates can be much lower for you. Overall, the rate ranges from 9% to 20% per annum. But if we have to say on an average basis, it will be around 10% to 16% per annum. Your repayment amount will automatically be lower. In the below table, we are providing interest rates of some of the top lenders who provide gold loans.

You need to remember that the low-interest rate is not the only thing that you need to look at while applying for a gold loan. There are some other factors that you should also consider before finalizing the suitable gold loan for you.

Flexibility in Repayment

You must know this fact that repayment is one of the most important aspects of taking a loan against gold. And this aspect is a hidden advantage because of the number of repayment methods from which you can choose. Individuals feel much more comfortable when they have got more than one repayment option to choose from. You must remember to keep your repayment capacity in the frame while choosing the repayment option for you. We are providing all the repayment methods below and also telling them about briefly. Have a look!

• EMI Method – Monthly Payment for your Tenure which will consist a part of principal and interest
• Interest Payments at Regular Intervals – Pay the Interest amount at regular intervals – Monthly/ Quarterly/ Semi-yearly/ Yearly and pay the principal amount at the end of tenure
• Upfront Interest Payments – Pay the total interest payment at the start and principal amount at the end of the tenure
• Bullet Repayment – Pay nothing during the tenure. Instead, pay both principal and interest amount at the end of tenure

Faster Processing

Taking a loan against gold can be the best option for an applicant as this loan facility can be processed faster as compared to other loans by other lenders. It is one of those advantages that helps people to overcome their financial emergencies. The loan amount will be disbursed to your account at a much faster rate as soon as the documentation and authentication are done. The security provided by an applicant in the form of physical gold also backs your candidature in getting the loan amount easily.

Higher Loan Amount

With the help of a loan against gold, you will be able to get the highest loan amount against your gold ornaments and gold coins issued by banks. The important thing in a gold loan is that your loan amount depends on your overall gold value and this thing is known as Loan-to-value Ratio (LTV). In the case of a gold loan, the LTV ranges from 65% to 90% of your overall gold value.

Let’s understand this through an example. Suppose the overall value of your gold is INR 5 lakh. Now, according to this, you can get a maximum loan amount of INR 4,50,000 with the minimum being INR 3,25,000. So, by this, you must have got an idea about how your loan amount is calculated by the lenders. And this LTV changes from one lender to another. So, don’t forget to check the LTV ratio of the lender you are choosing.

No Checking of Credit History

While availing for any kind of loan, lenders check the credit history of an individual to see if the borrower is eligible or not. So, suppose your credit score is low due to past missed payments, lenders might reject your loan application. This is the advantage of taking a loan against gold since you are submitting the security in its physical form, there is no checking of your credit history. So, a gold loan can be a perfect option for individuals who are struggling to get the loan amount because of their bad credit score.

No Charges for the Security of Your Gold

Lenders do not charge any kind of extra fee for putting your gold ornaments safely in the full-proof vault of the banks. Your gold will be a lot secured as compared to sitting in your home locker. Hence, this is an added advantage that you can avail of with a Gold Loan. Apart from this, you also don’t need to pay any charges for part payment or foreclosure. You can also get a part of your gold back during the tenure in case there is some emergency with Part Withdrawal facility.