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Need for a Gold Loan

There is a famous saying "Interest on debts grow without rain." The easiest way to fall into a debt trap is availing a loan with a high interest rate. You definitely need a gold loan.

So how do you prevent yourself from falling into a debt trap?

You use your greatest weapon to save on your interest payments."Collateral". Collateral is a security or a guarantee pledged to avail a loan. In the case of a gold loan the collateral is gold.

What is a gold loan?

You can avail a loan from a bank or an NBFC by pledging your gold. You can pledge your gold coins or gold jewellery and avail a gold loan from a bank. The gold has to be of purity 18-24 carats.

You can pledge only gold jewellery to avail a gold loan from an NBFC. This is because gold jewellery has an emotional value. You might have pledged your ancestral gold jewellery or wife’s necklace and you are likely to pay off the pending dues even if the value of the gold falls.

You have a loan to value ratio of 75% if you avail a gold loan from a bank or an NBFC. This means for every INR 100 of gold coins or jewellery you pledge with a bank, or gold jewellery you pledge with an NBFC you get an amount of INR 75 as a loan.

Why you need to avail a gold loan?

You son wants to do his MBA from a reputed college. Higher education costs a lot of money. A gold loan can be very useful in such times. Your daughter will be married soon and a gold loan can be the answer you seek. You have a health or a family emergency a gold loan helps in the time of your need. Your gold locked up in the locker fetches little value. You can avail a loan against it by pledging it with a bank or an NBFC and unlock its true value. Gold loans have a very short processing time. You can avail a gold loan from a bank or an NBFC in a few days or hours. You just need to submit an identity proof and an address proof and 2 passport size photographs. It is easier to avail a gold loan from an NBFC rather than a bank because of easy due diligence. Banks have a very strict due diligence compared to NBFC’s. However NBFC’s charge a higher rate of interest.

What is the interest rate charged on a gold loan?

Banks charge an interest of around 12-16% per annum on your gold loan. They might also charge an additional processing fee. NBFC’s charge around 16-26% per annum as interest on the gold loan. There are no processing fees. Gold loans for agriculturists are available at around 10.5-13% per annum for a loan amount of around INR 3 Lakhs.

How do you repay your gold loan?

If you avail a gold loan from a bank you have to repay the borrowed amount as EMI’s.

The EMI is divided into the principal and interest component.

Gold loan EMI = Principal (Borrowed amount) + Interest.

If you avail a gold loan from an NBFC you only have to pay the interest on this loan during the tenure of the loan and the principal borrowed at the end of the tenure as a single installment. Gold loans availed from banks have a repayment tenure of around 1-3 years.

What happens if you do not repay your gold loans?

If you do not repay your gold loan EMI’s in time the bank sends you reminders every 3 , 6 or 12 months. If you do not pay the interest on your gold loan from the NBFC you are sent reminders. If you still do not pay up the amount the gold coins or jewellery pledged is melted by the bank or the NBFC and auctioned to collect the pending dues.

What quantity of gold loan can you avail?

If you avail a gold loan from a bank you can pledge your gold coins or jewelry and get a loan amount of 10-15 Lakhs. If you avail a gold loan from an NBFC you can pledge your gold jewellery and get a loan amount of around 1 Crore.

Remember : A gold loan is a secured loan and this means you are charged a lower rate of interest than a personal loan. Gold loans are extremely popular in rural areas in India. People in rural areas have a lot of gold jewellery and can easily avail a gold loan. This helps them to unlock the true value of their gold and fulfil their needs.

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