Is Gold Loan A Good Option – The Benefits

Gold today is being increasingly considered, not only as an ornament , adding to a women’s glory and charm but also being seen as an appreciating investment vehicles. People normally have been investing in gold bars and biscuit and holding it in order to get higher returns in future when its rates have risen. Keeping in mind volatility in its rates many financial institutions have started valuing gold, as an investment tool on which even mortgage can be applied for. Thus, loans which are granted on gold, often known as ‘gold loans’.  Tends to be cheaper than the loans granted otherwise. The obvious reason for this is that the ever spurting high rates of gold. Gold loans have in the recent past become quite popular and many leading financial institutions are offering low rates on gold loans.

Some of it’s obvious benefits, making it a clear and evident option, over most other forms of debt, are mentioned below:

Simple Procedure, Fast Disbursal:

The formalities in availing gold loans are minimal and procedures are simple. In practice, the entire process should hardly take fifteen to twenty minutes. This makes gold loans ideal for the micro-finance segment where the loan amounts are small and where there is no point in testing the borrower’s patience with elaborate procedure.

No Depriciation of Underlying Asset:

Unlike other secured loans, the underlying asset in a gold loan is not subject to depreciation. At the same time, unlike land, it is a liquid asset and the transaction costs involved when enforcing the security are minimal. Thanks to this, the lender always enjoys a degree of comfort not available in other loans, and he does not have to go chasing after the borrower for timely repayments of instalments or EMIs. As for a borrower facing temporary difficulties, the only compulsion is to keep on servicing the interest component, till his situation permits repayment.

Larger Loan Amount:

On can get loan amount upto Rs. 20,00,000 against gold. However, this figure differs from bank to bank similarly the loan amount differs and depends on the existing gold rate in market. For now, banks are providing loans up to Rs. 1,400.

Lower Interst Rates:

The interest rates on Gold loan , hover on an average of around 12 to 15 % per annum.

Flexibility in Repayment:

The obligation of fixed repayment of loan , using fixed EMI spanning over a fixed period of time, does not prevail in case of a gold loan. It can be repaid in any amount and  thus can also be closed at any point of time .

No compulsion of Guarantor:

Gold being a security itself, banks do not ask for a guarantor while disbursing a gold loan. And this comes at a nominal processing fee of around 1 percent of the sanctioned amount of the loan.