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| March 12, 2024

A Beginner’s Guide to Gold Loans in India

For ages, gold has had great significance in Indian society as it is considered a status symbol and also an auspicious commodity. Being the land of gold, in India, individuals always had gold commodities remaining idle at home. So the practice of people pledging their physical gold in exchange for money became quite common. However, with the introduction of gold loans by banks and non-banking financing companies, the process of this exchange became more streamlined and efficient. A gold loan is a secured loan wherein credit seekers pledge their gold items to get financial help from the lender. Then, their gold items' quality and quantity are evaluated by the lender to calculate the gold loan amount the borrower will be getting for the gold items.

Gold loans are a great option for those who either have no credit history or a bad credit score. This is because these loans are secured and do not require stringent credit checks. Additionally, you can avail of a gold loan in the time of an emergency and fulfil your financial needs without any hassle. However, before taking the gold loan, check the interest rate you are agreeing to, to avoid repaying a huge amount.

Understanding Gold Loans

To have a basic understanding of gold loans, it is vital to know the factors affecting the loan amount you will be getting. When you give your gold as collateral to the financial institution, they assess its Loan-to-value or LTV ratio to give you the deal on your gold loan. The LTV ratio is the maximum amount you will get for your gold loan based on the current market value of the gold. The maximum value you can get for your gold is 80% but it can vary from lender to lender. The best practice before taking a gold loan is to check the eligibility criteria of the loan provider and then proceed further. Once you do all the formalities, the lender disburses the loan amount immediately and withholds your gold items till the repayment. Right after you get the loan amount, your repayment tenure starts which you can decide as per your financial situation.

Eligibility Criteria

Checking the eligibility criteria of any reputed gold loan provider like Muthoot Finance is important as eligibility can differ from lender to lender and can affect the gold loan interest rate. Here are some common eligibility criteria:

  • The borrower should be a resident of India, between the age of 18 to 75
  • Must be the authorized owner of the gold items
  • The pledged gold should meet a certain standard
  • A good credit score is a plus point for the borrower
  • Individuals must present their identity proof, income proof, and other documents that the lender requires

Benefits of Gold Loans

The best thing about a gold loan is that it comes with multiple benefits. Here are the most common benefits of taking a gold loan: -

1. Hassle-free process

Compared to other types of loans, a gold loan comes with a hassle-free process which is great for those who are taking a loan for the first time. The lender does not require excessive credit checks or lengthy documentation process as the gold is a security for the loan amount they are providing.

2. Quick disbursal

In case of emergencies, a gold loan is the best option for an individual. This is because as soon as your documentation and gold evaluation processes are completed, the loan provider disburses the loan amount. The speedy disbursal can be of great help when the funds are required immediately.

3. Affordable interest rates

Unlike other types of loans, the interest rates of gold loans are affordable, allowing the borrower to take the loan stress-free. The reason behind the affordability is that the risk of offering a gold loan is way less because it is a secured loan.

Suggested Read: Finding The Best Gold Loan Interest Rates In 2024

4. Flexible repayment options

One of the biggest advantages of a gold loan is the flexible repayment options it offers to the lenders. Borrowers can choose the loan tenure and EMI on gold loans as per their convenience. You can use a gold loan calculator to plan your monthly instalments easily.

Suggested Read: Gold Loan Repayment Strategies With Maximizing Benefits

Things to Keep in Mind

Before taking gold loans, one needs to keep the following things in mind:

1. Choosing the right lender

Due diligence is crucial when choosing a lender. The right lender will offer the best interest rates, at-home service, great value for your gold, and more.

2. Check interest rates

Make sure you calculate the interest rate on gold loans from different loan providers. This will allow you to get the most affordable interest rate on your loan.

3. Examine the market rates

The more the market value of your gold will be, the lesser the interest rate you will get. Do not forget to check the LTV ratio different loan providers are offering.

4. Repayment options

Repayment options also vary from lender to lender and should be considered before taking the gold loan. Many loan providers offer repayment options like partial prepayments, gold on EMI, etc.

As India’s largest Gold Loan NBFC, Muthoot Finance offers the best interest rates on gold loans. You can choose any of their gold loan schemes to fulfil your financial needs at your convenience.

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