Debunking the Common Gold Loan Myths

A gold loan from SBI gold loan, Axis bank or any other lender is one of the oldest forms of secured lending in India, which many Indian borrowers turn to meet their immediate financial shortfalls. However, some borrowers restrict opting for loans against gold owing to their widespread myths.

Here I have listed some common misconceptions about a gold loan:

Myth No. 1: Gold loans involve a long processing time

Some borrowers incorrectly assume that gold loans involve a long processing time. Gold loans presumably have the quickest disbursal procedure among all the loan options. These loans come with minimal documentation and are usually disbursed within a few hours of making the loan application. This feature makes a gold loan a prudent choice to deal with financial emergencies.

Myth No. 2: Jewellers are the only lenders of gold loan

Until a decade earlier, most of the lending took place in unorganized sectors via moneylenders and pawnbrokers. However, the entry of organized players such as banks and NBFCs into the gold loan market has made the lending process legit. While some borrowers still wrongly assume jewellers to be the only lenders of gold loans, there are other new segments of borrowers getting attracted to banks and NBFCs for a gold loan owing to their lower interest rates than those of the unorganized sectors.

Myth No. 3: Gold loans come with a high-interest rate

Some borrowers are of the view that gold loan charges a high-interest rate. The interest rate for a gold loan is determined based on the lender's assessment of risk. As RBI allows an LTV ratio of up to 75% of the gold's value, the rate of interest is based upon the LTV ratio allowed. As a higher LTV ratio involves a higher risk for the lender, they charge a higher interest rate to compensate for the higher risk involved in such loans and vice versa. Usually, the interest rate for a gold loan can be as low as 8.40% p.a. By opting for lenders who offer a higher LTV ratio at a lower interest rate, and you can avoid the burden of a higher rate of interest.

Myth No. 4: Regular EMIs are the only repayment mode for gold loan

In terms of loan repayment, a gold loan offers greater flexibility. Apart from the regular EMI repayment mode, borrowers can opt for a customized payment option, wherein you may repay only the interest as EMI or upfront and the principal amount in full on the maturity date. A bullet repayment option is also available where the borrowers can repay both the interest and principal at the end of the tenure. Thus, the flexibility in repayment offered by financial institutions to gold loan borrowers can be particularly helpful for those lacking uniform cash flows.

Myth No. 5: No prepayment option is available for gold loan

Owing to their shorter tenures of usually up to 4 years, gold loans are assumed to have no prepayment option during their loan tenure. However, like other loan options, the gold loan allows prepayment options to their customers. While lenders usually do not charge any prepayment penalty for gold loans, some may charge up to 2.25% of the outstanding amount if closed before the completion of the loan tenure. As the primary objective of prepayments is to save on the cost of interest, incurring prepayment charges would reduce the benefit of making prepayments. Hence, ensure to choose a lender that charges no or minimal prepayment/foreclosure charge.

Myth No. 6: Traditional gold jewellers can just offer the gold loan

This specific fallacy is pervasive, and individuals who do not have extensive knowledge about gold loans are completely left with just one choice. Alternative gold loan providers like the NBFCs and banks even provide efficient and safe gold lending offers to you. Also, as a loan against gold is a secured credit option, the interest rate on this loan option incurred by the lenders is extremely low than the unsecured loan options like personal loans, loan against credit card, etc.

Myth No. 7: The procedure of getting the loan against gold approval is very lengthy

Note that a gold loan is one of the most uncomplicated and extremely reliable financial help you can get. It helps you in claiming the loan proceeds in an extremely short time. You can get the benefit of gold development and enhancement of its prices in the market while addressing the financial concerns. To get the gold loan, you must first strike a comparison amongst lenders to zero on the one that best matches your requirements. Once you have selected your suitable lender, submit an online application for a gold loan.

Myth No. 8: High chances of jewellery theft or loss

This is extremely unlikely if you have selected a reputable bank or NBFC. Additionally, your gold jewellery will be insured against any unintentional damage or theft while they are stored in the financial institution's vault.

Myth No. 9: Sky High rate of interest

This is untrue. Gold loans are one of the inexpensive credit options available in the market today. Distinct financial institutions like NBFCs or banks provide a differing rates of interest, but none are considerably exorbitant. Gold loans allow you to meet your financial obligations during an exigency. In fact, the gold loan rate of interest is lesser than a home loan, business loan and personal loan rate of interest.

Myth No. 10: Traditional ornament and jewellery are not acceptable

Obviously, this is not the situation. NBFCs and banks do issue loans secured by antique gold or jewellery and contemporary gold ornaments. The single parameter that is considered while offering gold loans is gold purity, which should at least be 18 carats.

In case you are in requirement of instant funds, you must for sure consider availing gold loan. For this, you will have to take the ornament or jewellery to any of the banks of NBFC providing gold loans and get this loan for any value instantaneously. With easy and simple documentation, a gold loan can be availed effortlessly and instantly.