By Priyank Kothari
When an urgent need for funds arises, the first solution that often comes to mind is a gold loan. It’s undoubtedly one of the most popular, easy, and smart ways to address unexpected financial needs. Although a gold loan simply involves borrowing money by pledging gold, it can be a bit confusing for some. Many people have questions about how gold loans work and whether they’re the right choice. Here are the answers to some frequently asked questions about gold loans.
What exactly is a gold loan?
A gold loan is a type of secured loan where the borrower's gold (jewellery, ornaments etc.) is pledged as collateral to borrow money from a lender. In other words, the borrower gets a certain amount by unlocking the potential of gold without selling it.
How much loan can one get from a gold loan?
As per RBI guidelines, a borrower can get up to 75 per cent of the loan against the value of gold pledged.
Is the gold safe after the loan is disbursed?
The pledged gold is kept securely by the lender until the borrower repays the loan in full, including any interest. Upon loan repayment; the borrower gets the gold back safe and sound.
Also Read : Want To Secure A Loan? Avoid These Common Mistakes In Your Application
Can one get a gold loan with a poor credit score too?
Credit score has no play in the case of gold loans. It is one of the main advantages of a gold loan. Because a gold loan is a secured loan, the credit score is not taken into consideration. As long as the borrower has gold to pledge, the gold loan is disbursed.
What documents are required for a gold loan?
Gold loans being secured have least documentation. Generally, identity and residential proofs along with the documents certifying ownership of the gold being pledged are undertaken to process a gold loan.
Will one get topped up if the gold price goes up?
When the gold price increases, the value of pledged gold also increases. In such times, the incremental top up can be availed of by the borrower. However, if the value decreases significantly, the borrower may need to either repay a portion of the loan or pledge additional collateral to maintain the loan-to-value ratio.
A gold loan is the most convenient and quick way to access funds in times of need, however, it is advised to borrow responsibly and understand all the terms as stated in the Key Facts Statement before signing for it.