Gold is deeply connected to Indian culture and tradition and is considered auspicious. Indians mostly buy this precious metal as ornaments and jewellery.
However, there are other ways you can benefit from this auspicious metal. For instance, you can secure a loan using gold as collateral, an easy way to solve your long-term and short-term monetary crisis. Thus, if you are a loan seeker considering this option, here are some of the top benefits of a gold loan you must know.
Securing a credit against your gold jewellery is one of the simplest and easiest methods to obtain funds, especially if you are in an emergency financial crisis. Here are five gold loan benefits that can give you a reason to opt for one:
The gold loan falls under secure loans, which are considered less risky for the lenders.
Moreover, the fact that it is secured using a physical form of gold keeps eligibility and documentation at a minimum. Thus, the overall processing time to book this type of credit is much less compared to unsecured loans.
As a result, you can find lenders processing your application within a few hours to a day, making it one of the quickest ways to secure financing.
The interest rates for gold loans are low due to the collateral involved. You may find unsecured loans such as personal loans or credit card options without pledging your assets. However, the interest rates of these loans are significantly higher. Consequently, gold loans offer attractive interest rates, even compared to other secured options such as home loans, mortgage loans, etc. This is highly advantageous when you are opting for a heavy sum.
The minor difference in the interest rates will save you a substantial amount over the entire tenure. Therefore, if you want to secure a large credit with smaller monthly repayments, gold loans are a viable option.
Another significant advantage of a gold loan is that it requires minimal documentation. The documentation includes a simple KYC-based process, requiring only your address proof and identity proof. These may consist of your Aadhaar card, passport, voter ID, driving licence, or utility bills.
Moreover, a gold loan lets you secure monetary funding without having to show any proof of income or credit score, making it one of the most attractive options for most. Therefore, you do not need to worry about repayment or credit history for past transactions.
Most Non-Banking Financial Companies (NBFCs) have zero or negligible processing fees and other foreclosure charges. This is because, by depositing your gold possessions with the lenders, you can secure credit almost instantly without much processing time.
Moreover, a gold loan does not include any pre-penalty charges. Therefore, zero processing fees and foreclosure charges together can save you from the added expenses and reduce the total outgoing amount.
Due to the convenience of online offers by most NBFCs, the process of opting for gold loans has become much more transparent and quick. With all lenders, your gold assets will be carefully evaluated as per industry-grade karat metres so that you receive the right amount for your deposit.
Additionally, most NBFCs offer high security and keep your asset in their vaults at all times. Therefore, you can retrieve your gold as soon as the repayment tenure is successfully over.
Gold plays a multitude of roles in securing your finances. If you opt at the right time and from the right lender, gold loans can help you collect substantial credit quickly without the hassle of going through a long-drawn procedure. Benefits of gold loans also include tax benefits for residential construction, or home renovation at lower rates, offering a better alternative to home loans at times. Therefore, opting for one could save you from a high expense if you weigh out your requirements and risks and choose a lender wisely.
One of the most common reasons why people prefer gold loans is because of their low-interest rates. In addition, gold, compared to any other collateral, is considered a preferable option for lenders as they can quickly sell it off in case of discrepancies. Moreover, being a secured credit, the processing time and fees for gold loan is significantly low.
Gold loans do not offer tax exemption benefits for personal expenses, except for a few circumstances. According to several Sections of the Income Tax Act of 1961, you can only avail of gold loan tax benefits if you use the loan amount for the following:
Reconstruction of residential property
Asset purchases other than the property
Under Section 54F of the IT Act of 1961, you can save taxes by claiming exemptions by selling your gold assets. This regulation allows a tax exemption on capital gains when you sell your gold assets. Other than this, you can avail a tax exemption by using the gold credit for home renovation or residential construction up to Rs. 2 Lakhs annually.
No, in India, it is mandatory to have a PAN card to purchase gold worth Rs. 2 Lakhs or more. It is used as an income verification document and also helps to check your creditworthiness while applying for a loan.
You can save tax liabilities according to Sections 54F and 54EC of the Income Tax Act. According to the provision of 54F, if you re-invest the returns from your gold investment in residential property, you can get a tax exemption from the total earnings. For instance, Sovereign Gold Bonds mature at eight years, whose capital gains are tax-free when you redeem them at maturity.
On the other hand, as per the provision of Section 54EC, you can invest your returns within six months and can save the entire tax from those earnings.