Why Gold Loan is better than Any other Loans


Gold loans are considered better than any other loan due to several reasons -

Availability - Gold loans are easy to avail of as compared to other loans such as personal loans which have a strict eligibility criterion. A gold loan can be obtained by any person above the age of 21 and who owns gold, regardless of their occupation. Banks and financial institutions offer online and offline services for borrowers to obtain a gold loan.

Minimum documentation - The borrower has to submit standard documents such as an aadhar card, PAN card, passport, voter’s id, ration card, cancelled cheque etc., to obtain a gold loan, The banks and financial institutions require identity proof, residential address proof and gold balance transfer documents.

Quick processing - Gold loans are processed quickly by banks and financial institutions. The gold loan amount is deposited in the borrower’s bank account within 24 hours of the loan approval. The simple eligibility criteria and minimum documentation also play a crucial role in this. Several banks and financial institutions such as Muthoot Finance Gold Loan process gold loans quickly.

Immediate cash - Gold loans allow borrowers to obtain instant cash from banks and financial institutions against their gold. Borrowers are issued an LTV of up to 75% of the gold’s value, which is determined based on the Gold Rate Today, gold’s quality and weight.

No income proof - The borrower does not have to submit proof of income. A gold loan is secured against the borrower’s gold; therefore, the bank or the financial institution does completely have to rely on the borrower’s repayment capacity. This risk involved for the bank or the financial institution is low as compared to other loans.

Low credit score - The borrower’s creditworthiness does not play a crucial role in determining their gold loan eligibility criteria, therefore, banks and financial institutions issue gold loans to borrowers with a low credit score too. The borrower’s existing debts, credit score, income stability etc., is not evaluated by the bank or the financial institution.

Low interest rate - Since a gold loan is a secured loan the interest rate charged on it by banks and financial institutions is lesser as compared to other loans such as unsecured loans. This is because the borrower pledges their gold as collateral or security with the bank or the financial institutions.

No processing fee - Generally, banks and financial institutions levy a processing fee on a loan but no processing fees are charged by banks and financial institutions on gold loans. While some lenders may charge a processing fee, it is normally 1% of the gold loan amount.

No prepayment fees - Banks and financial institutions do not impose any prepayment fees or a lock-in period for prepayment on gold loans. This is beneficial for the borrower to go into debt faster or save up money on the remaining EMI as the interest rate decreases when a prepayment is made.

Repledging - The borrower can use the same gold jewellery or ornament as collateral or security to obtain a gold loan from a lender. There is no restriction on that. The borrower regains the ownership of the gold once the loan is repaid and they can use the same asset in the future to avail of a gold loan again.

Repayment options - Banks and financial institutions provide several options to borrowers to repay the gold loan amount. Flexible repayment structures such as EMIs, prepayment, advance interest payment, interest payment at regular intervals, and bullet payments are provided. The borrower can select any option based on their financial requirements and repayment capacity.

Existing asset - To avail of a gold loan, the borrower can pledge an existing asset. The borrower can use this existing gold to avail of cash from banks and financial institutions in emergencies.