However, one of the better ways to use gold in case of an urgent cash requirement is by applying for a loan against gold(also known as a gold loan). This is a quick and hassle-free way to get access to credit when you really need it. Today, many banks and NBFCs offer gold loans that are quite competitive when compared to other forms of credit like personal loans and credit cards.
Here are some of the key benefits of applying for a gold loan:
Easy documentation
As you are pledging an expensive asset such as your gold ornaments, you do not need to submit any other security/collateral to the lender. Lenders may ask for a list of documents that include proof of identity (such as your PAN card, Voter’s ID or Aadhar Card) and address proof (like your Passport, Driver’s license or Electricity bill).
Faster processing time
The loans are backed by gold as security and the lender can opt to sell the gold assets in case of a default. This reduces the processing time with some lenders disbursing the loans in a few hours.
Convenience and flexibility
Similar to a personal loan, you do not need to declare the end use when taking a loan against gold, thus enabling you to use it for any type of urgent financial requirement, making gold loans rather flexible to use.
Lower interest rates
Since this is a secured loan, lenders charge a lower rate of interest as compared to personal loans. Although it varies, the interest rate for a gold loan varies from lender to lender and ranges between 9.24% and 17 per cent, along with additional processing fees.
Balanced credit mix
A loan against gold is a secured loan type that can be availed by pledging your gold articles as collateral to the bank or lender. In exchange, you can get up to 70 - 80 per cent, based on factors such as the current market value, quality of gold, and lenders’ terms and conditions. A secured loan also helps improve your credit score as lenders view a consumer’s healthy mix of secured and unsecured loans positively.
Shorter loan tenure
You can avail of a loan against gold for as short a period as 1 month to as long as 5 years, depending on your lender. This flexible tenure and short-term loan helps you plan your credit repayment at your pace.
However, one needs to be cautious while taking a gold loan. In the event of non-payment, lenders can take action by levying higher interest rates or worse, by auctioning your gold items in order to recover outstanding amounts.
If you are going to take a loan against gold, here are two tips to help you stay credit-conscious and credit-savvy:
- Remember to avail of credit responsibly: Only apply for the amount you really need as opposed to the amount you may want. Gold loans are secured against your gold ornaments; however be cautious about how many ornaments you are taking a loan against, and your ability to repay the loan.
- Use it to build your CIBIL Score: Your lender will report your loan repayments (or delay in payments) back to CIBIL and other credit bureaus. Timely repayments, among other factors, can help you build a better CIBIL Score, and will impact your future access to credit. So remember to pay on time, every time.
Loans against gold, like many other credit options, can help you with access to credit quickly, thus making gold a good investment opportunity even today. Please read the lenders’ fine print carefully and take an informed credit decision. Your credit profile depends on it.
The author is VP and Head of Direct-to-Consumer Interactive, TransUnion CIBIL
