Gold, which is among the most liquid assets, has a superior return on investment than other investment avenues, giving it an advantage over those avenues. Due to the fact that it may be converted into monetary value or pledged in order to acquire funding, it provides a feeling of financial stability during times of crisis and acute demands for funds. One can reach out to the jewelry that is just sitting about doing nothing in order to apply for a Jewelry Loan in order to quickly fulfill urgent financial needs. This might be for the schooling of one’s child, the renovation of one’s home, the funding of one’s company, or any kind of medical emergency.
How Does the Borrowing of Gold Work?
Because banks don’t have to be concerned about the value of their non-performing assets, gold loans are among the most profitable loans that banks offer (NPAs). This is due to the fact that the jewelry, which is used as collateral, is kept by the bank even in the event that the borrower does not pay their loan’s monthly installments, also known as EMIs.
A gold loan operates in the following manner:
First things first: when a customer approaches a financial institution for a gold loan, the first thing the institution does is check the purity of the gold jewelry that is being considered as collateral, along with determining the value of the jewelry. After that, the institution moves on to the next step of the process, which is determining the loan amount.
Know Your Customer (KYC): Know your customer norms and verifications as stated by the bank, in which the bank gets to know their customer’s details such as individuality, good credit, the requirement for obtaining a loan, and other details that are crucial in the loan.
Approval of a gold loan occurs after the evaluation of the item’s quality and value, as well as the completion of the Know Your Customer (KYC) procedure. At this point, the customer and the financial institution come to an agreement on the loan conditions. After reaching an agreement, the loan is subsequently accepted, and the agreed-upon sum is deposited into the borrower’s account. The whole procedure can be finished in a couple of hours at the most.
Make sure it is a reputable lending institution.
Because you will be using your priceless gold as collateral for the loan, you need to be sure the lender is trustworthy. You should steer clear of acquiring a Jewelry Loan from a jeweler or a small business because these establishments may not be regulated and may require harsh terms and conditions. It is also possible that they are perpetrating a hoax on us. When choosing a financial institution, it is in your best interest to go with one that has earned its certification and in which you have complete faith.
Consider all of your alternatives for making payments.
Another essential aspect to take into account is the possibility of making repayments, and in this regard, you have several alternatives to choose from, including the following:
In the case of a “bullet payment,” the amount of the monthly loan payback is determined in accordance with the typical criteria, but the entire amount, including the interest, is paid up at the end of the loan period. If you anticipate that your cash flows will improve at the conclusion of the term of your loan but that they will be low initially, this is the best choice for you.
Due to the fact that the interest rate on a gold loan is established based on the lender’s risk assessment, the annual percentage rate (APR) can range anywhere from 7% to 25%. Lenders determine the interest rate on gold loans based on a number of characteristics, including the LTV ratio, loan tenure, loan amount, and other parameters.
Gold loans are considered to be short-term loans with repayment lengths ranging from 7 days to 3 years, as well as a number of different repayment options are available.
While deciding on the terms of the Jewelry Loan, one needs to plan it out in such a way that they are certain they will be able to repay the money within the allotted time. A longer tenure results in a greater interest rate being charged to the borrower.
Last but certainly not least, make sure you have a solid grasp on the repayment terms of the gold loan. There is more than one choice available. In comparison to other types of loans, the repayment plan for gold loans is typically more flexible. It is possible for the repayment structure of gold loans to vary from bank to bank. You have the option of paying simply the interest amount during the term at most banks, and then at the conclusion of the term, you could pay the principal balance and get your gold back.