The gold loan outstanding across all commercial financial institutions grew significantly in recent times. A report from the RBI revealed that the outstanding loan against gold jewellery was Rs. 62221.07 crore till 18th June 2021.
While the gold loan segment boomed last year, doubts about this financial product are still very apparent. Hence, the following sections will eliminate some popular myths and help individuals choose the best loan offer per their requirements.
5 Most common gold loan myths debunked
Below are the most common misconceptions associated with gold loans in India:
Myth 1: Gold loan interest rates are high
On the contrary, the gold loan interest rate is competitive compared to other unsecured credit offerings with no end-use restrictions. By pledging gold articles, individuals can secure a substantial loan amount.
However, the gold loan interest rates depend on the factors below:
- Gold purity: Gold articles with higher carat measurements fetch lower interest rates
- Loan amount: High the loan value, the higher the interest rate
- Rate of inflation in the market: Lenders offer lower interest rates when the rate of inflation is high
- Current market price of gold: If the current market value of gold is high, one will get a better gold loan interest rate
- Repayment capacity of borrowers: Lenders impose lower interest rates for applicants with higher monthly incomes
Individuals can also compare different lenders to secure the best gold loan interest rates. They can also opt for a part-prepayment facility to reduce the interest outgo to a great extent.
Myth 2: Pledged gold can get stolen or misplaced
The myth stated above is not true at all. Leading financial institutions like Bajaj Finserv ensures gold security by adopting the best safety measures. They offer doorstep services wherein the lender’s representatives visit borrowers’ addresses with a carat-meter for gold appraisal.
Besides, lenders also keep the deposited gold in a vault in a room equipped with advanced and top-tier safety measures.
Selected NBFCs like Bajaj Finserv also provide a complimentary gold insurance policy to protect the pledged items financially against misplacement or theft.
Myth 3: Only jewellers offer gold loans
It is 100% false as leading financial institutions, including NBFCs, offer gold loans at an affordable interest rate. Gold Loan in India is diversified into organised and unorganised sectors, and the latter has a considerable market share. However, borrowing from informal lending sources is expensive as the lenders levy higher interest rates on the funds. Additionally, the loan terms are often unclear and include dubious clauses that lead to loss of ownership of pledged items.
Moreover, the certified lending institutions also offer a host of benefits like superior gold security, doorstep facilities, and a transparent appraisal process.
Myth 4: Gold loan processing time is long
This is also a common misconception about gold loans. However, in contrast, a gold loan is one of the best borrowing options for short-term financial needs. The reasons can be attributed to prompt processing time. The short documentation, simple eligibility criteria and doorstep services further expedite loan processing.
Following is the process to apply for a gold loan in India:
Step 1: Visit your preferred lender’s website and apply online for a gold loan
Step 2: Duly fill up an online gold loan application form with relevant details like name, contact number, email id, etc.
Step 3: After getting the application, lenders will send representatives to applicants’ addresses for loan appraisal and documentation
Step 4: They will complete this verification process and disburse the loan amount instantly
The process may vary across lenders. However, the steps mentioned above remain almost the same. Before applying, individuals should also know the processing fees and other applicable charges.
Applicants can also resort to a gold loan calculator and enter the gold item details to check the maximum loan amount they are eligible for.
Myth 5: Not all gold jewellery is eligible for a loan
Contrary to popular belief, lenders accept almost all gold jewellery, old or new. However, the gold loan eligibility depends on the purity of this metal. Individuals can avail of a loan against gold jewellery with carat measurements of 18 carats to 24 carats. Since 24-carat gold is the purest form of this yellow metal, it fetches the highest loan amount and vice-versa.
Note that most lenders only accept gold jewellery and not bar or coins while extending funds. Moreover, if the gold articles contain impurities or other metals, their value depreciates, and lenders sanction the loan amount accordingly.
Now that these myths related to a gold loan are busted, it will be easier for individuals to avail this financial product and leverage its unique offerings. For instance, lenders do not consider the CIBIL score of individuals while sanctioning a gold loan, which allows the new-to-credit applicants and individuals with poor CIBIL scores to secure funds.
