If you think that gold jewellery are best used only during events and festivals to deck-up oneself, then you may want to rethink about the uses of these ornaments. Did you know that banks and NBFCs today offer loan against gold? Like other secured loans, which needs you to secure an asset with the financial institution, a gold loan requires you to pledge the gold ornaments with the lending company. Many would ask, but how does a gold loan reap returns? Because one can generate finance even by selling the gold, right? Then why to get trapped in the spiral of loan?
The logic behind gold loan is simple- you need funds thus you look for a loan. You can take a loan against property, but by doing so; you will have to take a longer tenure, despite having a good repayment capacity. A loan against gold has tenure of only 2 years, thus you save on additional interest payment. Now consider- selling gold vs taking a gold loan. Of course, if you can save your asset from being liquidated, a loan is always better. You would take the loan only if you have the necessary repayment capacity.
How Does a Gold Loan Help You Generate Returns?
As gold prices usually surge ahead, these should be last to liquidate until a real crisis arrives, where even obtaining a loan, is not a credible means of rescue. Thus, if we imagine gold loan as worthy of reaping returns, yes it does give you returns, by saving you from hassles of paying more interest and losing time in getting finance. This loan can be disbursed in as less as 45 minutes. You need just your KYC documents, which are residence and identity proof. No need of income proof, bank statements, financial statements, credit report, salary slip, or income tax return proof.
Once the gold valuation is done and documentation is complete, the amount is sent to your bank account. Moreover, you can apply for a gold loan online. You have to visit the bank only for gold valuation, which can be done within a short-time. The ornaments are checked for purity (minimum requirement is 18 carats and above) and weight.
NOTE: Do remember that you can only get the loan on the ornaments you own, though producing the bill of the jewelry is not mandatory. Only the gold in the jewelry is considered, and not any other metal, precious stone etc in the same, will be accounted to calculate the loan amount you are eligible for.
Why is a Loan against Gold Popular in India?
Even though there are several types of loans you can take today, gold loan remains predominant source of funds in the lending market. Banks and NBFCs are eager to offer the loan on this metal because many of us Indians possess gold in form of ornaments and as these are a risk-free deal for the financial institution, they do not hesitate to provide the amount, and thus your financial history is not a concern as well. However for a higher loan amount, your credit profile may be considered.
Banks also keep a margin of 25%, and can offer up to 75 percent of the gold’s value. Thus, if you are unable to repay, the gold is auctioned. If you can repay in timely manner, then the jewellery is returned to you at the end of the tenure and repayment.
Is it Wise to Use Gold Loans for Investments?
Many people use a gold loan for investment. The money is put in various investment tools for higher returns than the cost of the ornaments and the interest payment. As the rate of interest starts as low as 10.50%, individuals may lookout for a higher return investment platform and use the funds to generate more funds, thus meeting a win-win situation. Some people even become micro-lenders and offer funds to those with ornaments, and use their role as lender to gain returns. However, it is advisable that you should borrow from recognized and registered banks and NBFCs only. There are n-number financial institutions that offer loans on precious jewelry today.
As the funds can be used for any purpose, you are free to wisely invest, utilize, and fulfill any financial emergency from it. If you utilize the loan amount appropriately, then it is similar like gains you can expect from investing or using money from your own account or savings. Take advice of a wealth manager if you really want to invest the money from gold loan for mutual funds and bonds etc.
Thus, if you are still pondering about returns you can expect from gold loan, there are endless facts to make you believe that you will not go in loss.