What Is Gold Loan? 5 Points That Explain How It Works

By Author: Neha Sharma
Total Articles: 238

"Gold loans have become one of the most popular types of loans. Getting a gold loan is simple and flexible as well in terms of repayment tenure, gold loan interest rate, interest rate calculation, principal repayment etc. Some lenders also disburse funds immediately after the gold is pledged with them.
Here are 5 points that explain how a gold loan works:

1. Secured loan:
A gold loan in India is a secured loan. This means that the gold has to be deposited with the lender. The lender has to keep this gold safe and secure under lock and key. The gold is returned to the borrower once the loan is fully repaid.

2. Amount of loan and rate of interest:
The amount of gold loan depends on the value of the gold that the borrower brings. Most lenders independently test the gold to find out the purity of the gold i.e 18 karat, 22 karat, 24 karat. Some lenders may only lend for gold of a particular purity level while others accept all types of gold. The loan amount is usually a percentage of the value of the gold. This percentage can range between 60% to 75%.

The gold loan interest rate depends on the lender but ranges between 10% to 20%.

3. Short tenure:
Gold loans typically are given for short tenures that may last up to 12 months. It is advisable to take gold loans only if you can repay the loan on time. In case the loan can’t be repaid, the lender will auction the gold to recover the loan amount.

4. Prepayment:
Most lenders allow the borrower to prepay gold loans without any extra charges. Unlike other loans like personal loans which come with prepayment charges, gold loans can be repaid at any time after they have been disbursed. Once the loan is paid off in full, the secured gold is released.

However, not every lender will have the same repayment terms. It is important to go through the repayment terms. Some lenders may allow principal repayment at the end of the tenure while others may allow EMI type structured payments

5. Documentation:
Gold loans do not require many documents. Since it is a secured loan, the only documents required by lenders are PAN card copy, address proof, identity proof of the borrower.

Before you apply for a gold loan, you can use a gold loan calculator to find out the amount of loan that you will get when you put up gold of a particular purity. Gold loans are convenient to opt for where funds can be disbursed on the same day."

Author Bio:-Neha Sharma is an aspiring student in the field of finance. She spends her free time reviewing the latest apps introduced into the market. Check out her work as she explains how a gold loan in India works