A gold loan is a type of loan where the borrower provides their gold ornaments or jewellery as collateral to the lender in exchange for a loan amount. This type of loan is popular among people with poor credit scores as it does not require a high credit score to avail. However, while a gold loan may seem like an easy way out, it also comes with its set of challenges.
One of the key challenges of taking a gold loan is the risk of losing precious gold jewellery or ornaments if the borrower is unable to repay the loan. In the case of a default, the lender has the right to auction the gold collateral to recover the loan amount. Therefore, it is crucial for borrowers to carefully evaluate their repayment capabilities and take a loan amount that they can comfortably repay.
Another challenge of taking a gold loan is the possibility of getting a lower loan amount than the actual value of the gold collateral. Lenders generally evaluate the value of the gold and sanction a loan amount based on their own assessment, which may be lower than the actual market value of the gold. Thus, borrowers may have to settle for a lower loan amount than they require.
The relation between gold loan and poor credit scores is that gold loans are a feasible financing option for individuals who have poor credit scores or no credit history. Gold loans are secured loans where the borrower pledges their gold ornaments or jewellery as collateral for the loan amount. Unlike unsecured loans where the lender relies on the creditworthiness of the borrower, gold loans are backed by a high-value asset, reducing the lender’s risk. Therefore, lenders do not consider the borrower’s credit score while sanctioning the loan.
In addition to being an easier financing option, gold loans allow borrowers to improve their credit scores and creditworthiness. By repaying the loan amount on time, the borrower indicates to the lender that they are prompt with their repayments, which eventually improves their credit score. This can aid in improving the borrower’s creditworthiness in the future and increase the chances of being able to obtain other financing options.
Eligibility criteria for a gold loan
To be eligible for a gold loan, the borrower must be a citizen of India and above 18 years of age. They must also have gold jewellery or ornaments that can be pledged as collateral. Additionally, lenders may require borrowers to provide proof of income and address before sanctioning the loan.
Benefits of a gold loan
Gold loans offer several benefits to the borrower, including:
1. Quick disbursal: One of the major advantages of a gold loan is the speedy disbursal of funds. The application process is straightforward, and once the loan is approved, funds can be made available within hours.
2. Lower interest rates: As gold loans are secured loans, they have lower interest rates compared to unsecured loans such as personal loans.
3. No income or credit check: Another significant advantage of a gold loan is that lenders do not consider the applicant’s credit score or income while sanctioning the loan. Borrowers with poor creditworthiness can avail of a gold loan as long as they provide sufficient collateral.
4. Flexible repayment options: Borrowers have the flexibility of choosing the loan tenure and the repayment method, including EMI and bullet payments.
Drawbacks of a gold loan
Despite the advantages of taking a gold loan, certain drawbacks exist, including:
1. Risk of losing gold collateral: The biggest risk in taking a gold loan is the possibility of forfeiting the gold jewellery or ornaments pledged in case of repayment default. Borrowers must evaluate their financial situation before opting for a gold loan.
2. Lower loan amount: The loan amount sanctioned is lower than the market value of the gold pledged as the lender evaluates the gold’s value using their methodology.
Advantages of using apps to avail a gold loan
Several mobile apps have emerged in recent years that allow users to avail of a gold loan from the comfort of their homes. These apps have made the process of availing a gold loan easier and faster. Here are some advantages of using mobile apps to avail of a gold loan:
1. Convenience: Perhaps the biggest advantage of using mobile apps to avail of a gold loan is convenience. Users can apply for a gold loan from anywhere at any time, without having to visit a lender’s physical office. The entire process, from applying for the loan to getting the loan amount credited to their account, can be done online.
2. Faster processing: Mobile apps have reduced the processing time for gold loans significantly. Users can apply for a gold loan and get the loan amount disbursed within a few hours or even minutes. This is especially useful in case of emergencies when borrowers require quick access to funds.
3. Competitive interest rates: Mobile apps allow users to compare the interest rates offered by different lenders and choose the one that suits them best. This ensures that borrowers get the best interest rates and do not end up paying more than they need to.
4. Transparency: Using mobile apps to avail of a gold loan ensures transparency in the loan process. Users can track their loan application status, repayment schedule, and other details through the app.
Best apps to avail a gold loan
1. Bajaj Finserv app: The Bajaj Finserv app offers a hassle-free gold loan application process with minimal documentation. Users can get instant approval on their loan application and disbursal within 45 minutes. The app also allows users to track their loan application status and repayment schedule.
2. Rupeek: Rupeek offers gold loans at competitive interest rates and disburses the loan amount within 30 minutes of approval. Users can also opt for doorstep loan service, where a company representative visits their home to evaluate and collect the gold collateral.
3. Muthoot Fincorp: Muthoot Fincorp’s app offers gold loans of up to Rs.1 crore with minimal documentation and processing time. The app also allows users to track their loan application status and repayment schedule.
Gold loans are emerging as a popular financing option for borrowers looking for quick and hassle-free financing. Financial institutions offer gold loans at low interest rates, and borrowers can access funds without any credit score or income verification. However, borrowers must evaluate their repayment capacity before opting for a gold loan and ensure they do not default on repayment to avoid the risk of losing their precious gold ornaments or jewellery. Additionally, borrowers can benefit from the convenience and quicker processing time by opting to use mobile apps offered by lending institutions to apply for a gold loan.