The term loan means lending money by an individual or an institution (Banks or Non-Banking Financial Companies) with an expectation of getting the money back with a certain amount of interest. The lending system was originated centuries ago. The oldest lending mechanism one can think of was carried on by the pawnbrokers. Pawnbrokers used to collect collateral against which they used to lend money to the people. They used this method of taking security in order to reduce the risk for them.
Back then also, people were aware of the risks attached to advancing a loan that is why they were adamant about giving loans against collateral. This rule is prevailing today as well. Banks and NBFCs do have an option of unsecured loans but the rates charged on these loans are exorbitant, which makes it impossible for the borrower to consider it as a viable/workable option. In secured loans, a borrower has a variety of options to select from, depending on their needs. For secure loans, the borrower needs to provide the bank or NBFC (Non-Banking Financial Companies) with a guarantor.
A guarantor is an individual who gives a guarantee to the bank on behalf of the borrower and promises to pay the debt obligation of the borrower in case he/she makes any delay or default in the repayment of the loan. It is very difficult to find such an individual who is readily available to be the guarantor for the borrower in a situation where the borrower may urgently require funds. It requires a lot of time to find a guarantor whom the borrower trusts and get the guarantor verified by the bank.
Gold loans are a type of secured loan where all an applicant is required to provide is a gold article, a signed application, and KYC documents. The bank and NBFCs do not require a person applying for a gold loan to present them as a guarantor. The borrower needs to find a policy with the best gold loan per gram rate and a feasible gold loan interest rate. This makes it even more convenient for the borrower to apply for a gold loan whenever and wherever required.
SBI gold loan policy only demands the documents and the assessment of the gold article to be pledged before sanctioning the loan. Providing gold as collateral mitigates the risk for the lender.
This is the sole reason due to which borrowers and lenders prefer this loan.
Also Read:- Applying For Gold Loan Online VS Gold Loan Offline
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