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5 Situations Where a Gold Loan Makes Sense

By Chanel Rick - Aug 7,2022
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It’s your birthday? Here’s a gold bangle/bracelet!

The wedding date’s been fixed! Has anyone been gold jewellery shopping yet?

Congratulations on your wedding; please accept this gift of gold ornaments!” 

This year, I will plan to offer an 18-karat gold coin at the altar!” 

There’s no limit to the number of occasions gold can serve as an appropriate gift. The multi-purpose quality of gold allows it to transform itself into a gift, an investment, or a means to additional funds. You can pledge yellow metal investments against a sizeable loan based on the loan-to-value (LTV) ratio at your convenience. 

Through different stages of life, we encounter various small-and-big-ticket expenses. Some people prefer using personal loans to fulfil those obligations, but that’s not the only option at your disposal. Those who own a substantial amount of gold are eligible for loans against these assets. 

However, there are certain pitfalls to availing of such loans without thoroughly understanding how they can impact your credit score. Or without learning the different factors involved in gold loans. 

Things to Know Before Taking a Gold Loan

Taking a loan against your yellow metal assets can be a fruitful decision. It can positively impact your credit score, improving it by several points. Though, certain drawbacks could negatively affect these scores. 

Here are some everyday things that potential gold loan borrowers must know beforehand. 

●    Informal Gold Loan Lenders 

The unorganised gold loan segment offers its customers enticing offers like easy and quick gold loans with attractive interest rates. Experts advise borrowers to only trust their assets with legitimate lenders, like banks or NBFCs. Since the gold loan requires borrowers to pledge their investments, it’s best to deposit them with trustworthy organisations securely. 

Compared to banks, NBFCs usually offer borrowers a lower rate of interest or processing fees. 

●    Gold Valuation 

Lenders decide the loan amount to be sanctioned based on the valuation of the pledged gold. In case borrowers offer their gold jewellery as collateral, lenders will only consider the actual price of the gold – not the design and stones. Pure gold will receive a higher valuation, and the lender will sanction the corresponding amount. 

Usually, lenders only accept gold assets between 18 karats to 24 karats. The LTV ratio offered by the lender can range from 60% to 90%. 

●    Interest Rate Calculation

The lenders will assess the borrower’s risk profile and other factors to estimate the interest rate. Gold loan interest rates vary from 7% to 25%. Other factors include the requested loan amount, repayment tenure, LTV, etc. 

Before pursuing a gold loan, borrowers must compare the interest rates offered by other lenders. Also, they must ensure that they verify finer details like processing fees, etc. 

●    Repayment Options

Another area to consider is the repayment options provided by the lender, including EMIs. Though, if you experience any financial constraints, there’s an option only to pay the interest during the loan tenor. The remaining principal amount can be paid at the end of the tenor.  

●    Non-Repayment Consequence

Perhaps the most critical factor that borrowers should consider before applying for gold loans is how lenders deal with non-repayment. Initially, the lender will send reminders regarding missed or delayed payments. The lender will auction the gold if the borrower remains unresponsive to these payment retrieval attempts. 

Moreover, if gold prices experience a drop due to volatile market conditions, lenders may ask for additional gold to make up for it. Borrowers must match the amount of missing gold from the LTV ratio issued at the disbursement. 

5 Ideal Situations for Gold Loans 

Nobody can foresee financial emergencies, but taking specific precautionary measures is best to ensure minimal harm to your financial health. Instead of letting your gold stay idle, use it to avail a loan to finance urgent expenses! Additionally, it’s a viable option for unemployed individuals or those with low credit scores. 

Here are five instances that a gold loan could sufficiently finance. 

1. Business/Start-Up 

Without adequate funding, a new venture could put its plans on hold. The lack of liquidity would delay equipment purchases and payments for other expenditures. To solve this financial crisis, business owners can use their idle gold investments by availing a loan against them. 

2. Education Fees

Whether you plan to pursue further education or require funds for your child’s education, a gold loan can come in handy. Regardless of your credit score or history, as a secured loan, it can be availed by anyone who owns the necessary collateral required. 

3. Medical Care

The last two terrifying years of the pandemic have taught us the importance of owning an emergency corpus for sudden hospitalisation. For some, it could take a while before they can accumulate the necessary savings. If they encounter healthcare emergencies, they can quickly avail treatment funds by applying for a gold loan. 

4. Weddings

Having your dream wedding isn’t a far-fetched dream – it’s one a gold loan can make a reality! If recent expenditures depleted your wedding funds or the one saved for your children, apply for a gold loan. It can quickly provide the financial support required and is best used for temporary or short-term fiscal needs. 

5. Vacations 

Lack of travel funds could postpone these plans by months, or sometimes, years! Take your well-deserved break by applying for a gold loan. It will give you access to funds, which can be paid over months or years. For quicker repayment, it’s best to re-direct sudden windfalls towards closing outstanding dues. 

During these uncertain times, don’t let limited liquidity render you helpless when sudden emergencies arise! Use your idle gold-based gifts and investments to access the necessary funds quickly. Tired of tedious multi-step processes? Then, apply for a gold loan on Bajaj MARKETS for hassle-free and quicker access to cash flow. 

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522