Banks and Non-Banking Financial Companies (NBFCs) are sanctioning many loans on a day-to-day basis, and gold loans are among the many other loans with inexplicable and astonishing features. The primary reason for gold loan’s vast popularity and imperial trust is because of the collateral and the security the bank or NBFC provides for that. A personal loan is an unsecured-no collateral, a car loan is secured with many procedures, and a home loan is secured, but the collateral is your house. Like these different loans have different aspects that aren’t always the best for us.
But in a gold loan, the loan is secured, and the collateral is your gold article. Gold is something that Indians always have and always are fond of and have an abundance of usage. People have lockers and safe boxes in their homes full of gold ornaments or jewellery, and it is nothing unusual here. Mainly, it makes a good asset for the financier and uncomplexed collateral for the borrower. Banks and financial institutes prefer gold loans and find it easier than other secured loans with immobile assets like land or commercial properties. The gold pledged is given complete security and assurance for its safety by the bank or NBFC. So one doesn’t need to worry about it being lost or misplaced by the lender.
The gold loan amount sanctioned is a maximum of 90% of the gold’s value by the bank or NBFC. The value of the gold depends on the purity and the weight of the gold. The minimum purity requirement is 18k, and the maximum is 24 k. The value also depends on the rate of gold on that particular day. The bank or NBFC, after considering all these estimates, the value and grants you the loan amount based on their LTV value, whereas unsecured loans usually have fixed amounts like Rs25 lakh or Rs40 lakh as loan amount, so availing the money you want might be challenging in them, but a gold loan’ loan amount as mentioned depends on the value of the gold alone.
The loan is usually availed for a certain period, which the financiers term as tenure. The tenure of the gold loan varies from 3 months to 3 years in most banks and financial institutes. You can choose the tenure you want. The term is compact, which is another boon. The gold loan interest rate is the most critical aspect of a loan. The interest amount has to be paid by the borrower every month on time for the loan availed. Failing to do so will add interest on top of the existing rate. Further defaults in payments might result in the bank or NBFC auctioning your gold. So paying the interest on time is extremely necessary. The gigantic advantage in secured loans like a gold loan is the low-interest rate, unlike unsecured loans, which charge incredibly high interest. Still, for their non-requirement of collateral, a gold loan has the least amount as a monthly instalment payment. The rate starts from 7% per annum and goes as high as 20% per annum. A farmer with agricultural land in their name can avail of the loan with even less interest. Also, collateral-based loans or secured loans don’t look after the CIBIL score as keenly as for an unsecured loan. A gold loan doesn’t need a credit score, so even if you have a poor score, you can still avail of the loan, which is another benefit.
Banks and NBFCs also charge separately for the processing and approval of the loan application. The charge is known as a processing fee and goes up to 1% of the loan amount. Although, Some lenders charge NIL. The prepayment or pre-closure fee is incurred if the borrower closes the loan account before the actual maturity date. The charge depends on when the borrower closes the account. If it is in the early or ending days, the charge is NIL; else, it is 1% of the outstanding loan amount. The benefit here is most unsecured loans charge up to 2.5% as processing fees and upto 6% as foreclosure charges. The rates are incredibly high and unnecessary.
Manappuram gold loan is a highly renowned gold loan with billions of customers. The bank offers the best deals in the market and is exceptionally trustworthy.
Also read:- Step by step Instructions to Defeat Personal Loan burden
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