Financial emergencies happen without warning. No matter how prepared you may be, these unforeseen emergencies can potentially put the best-laid financial plans in disarray. While having an emergency fund can be a lifesaver at such times, it might not always be sufficient, depending on the emergency. Unsecured loans, such as personal loan, are often not that easy to obtain, especially if our credit score isn’t high.
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However, a secured loan, such as a gold loan, can be an ideal option within your reach. Let’s look at some basic features of gold loans that can help you if you ever need to avail of one.
Collateral-based Loans
Gold loans are secured loans that are given against physical gold, such as jewellery or ornaments. The loan amount is determined basis the purity and weight of the gold provided as collateral. Because it is a secured loan, gold loan interest rates tend to be lower than unsecured forms of credit, such as personal loans or credit cards.
Easy to Avail
One of the key benefits of gold loans is they can be obtained with minimal documentation. Also, the disbursal process for these loans is swift. After the gold is evaluated and the loan terms are agreed upon, funds are typically disbursed almost instantly. Thus, if you are in urgent need of funds, this is the ideal option.
Interest Rates and Charges
Gold loans generally have lower interest rates compared to unsecured loans. However, they do have certain charges, which you must be aware of. Lenders may levy processing fees, valuation charges, and prepayment penalties under these loans, all of which can drive up your overall loan expense. You must also carefully review the terms and conditions of the loan, including the interest rate, repayment schedule, and the schedule of charges before availing of the loan. This will help you budget for the loan and prevent any unpleasant surprises later.
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Flexible Repayment
Lenders usually offer multiple repayments options for gold loans. These include regular EMIs (Equated Monthly Instalments), bullet payments (where the entire principal and interest due is paid at the end of the loan tenure), or paying only the interest during the loan tenure and settling the principal amount at the end of the tenure. This flexibility allows borrowers to customise their repayment schedule as per their financial situation.
Loan-to-value (LTV) ratio
Gold loans are generally offered at a high loan-to-value (LTV) ratio, which helps borrowers avail of a higher amount in funds. However, it is important to note that fluctuations in the price of gold can impact the loan-to-value (LTV) ratio, thus requiring borrowers to pledge additional gold or repay some amount of the loan to maintain the required LTV ratio.
Gold loans are a valuable financing solution that allows individuals to leverage their gold assets to access funds in an emergency. However, like any other loan, one must remember to service the loan responsibly by making EMI payments on time in order to safeguard their collateral. It is also crucial that you assess and borrow only as much you require, and which you can afford to repay without straining your finances.
Let’s check out the rates of top 10 banks in India that currently offer gold loans at competitive rates.
| Gold Loan Interest Rates | ||
| Bank | Lowest Interest Rate on EMI Loans | EMI |
| STATE BANK OF INDIA | 9.60 | ₹ 22,798 |
| HDFC BANK LTD. | 8.50 | ₹ 22,568 |
| ICICI BANK LIMITED | 10.00 | ₹ 22,882 |
| BANK OF BARODA | 9.40 | ₹ 22,756 |
| PUNJAB NATIONAL BANK | 9.25 | ₹ 22,725 |
| UNION BANK OF INDIA | 8.70 | ₹ 22,610 |
| AXIS BANK LIMITED | 17.00 | ₹ 24,376 |
| CANARA BANK | 9.25 | ₹ 22,725 |
| INDIAN BANK | 8.65 | ₹ 22,599 |
| BANK OF INDIA | 8.80 | ₹ 22,631 |
| EMI on loan of ₹5 lakh over 2 years for term loans on EMI only. Top 10 banks by secured loans considered for this list. Compiled by BankBazaar.com. Updated on March 13, 2024. |
