Gold loans are typically taken over a shorter period of time to meet urgent needs such as paying for a child's education, preparing your wedding, or dealing with a medical crisis. The interesting fact about a gold loan is that you don't need a decent credit score or proof of income to get one. Gold loans are available to anyone above the age of 18 from both banks and non-banking financial companies (NBFCs). Several lenders offer loans based on gold pledges with low interest rates. The loan amount is determined by the amount of gold you pledge as a collateral to the bank. Because gold loans are backed by physical gold, lenders are less likely to need a high credit score to approve them. Furthermore, the time it takes to disburse a gold loan is extremely short.
Procedure to apply for a gold loan
The process for obtaining a gold loan differs from one lender to the next. The essence of a gold loan is straightforward: you pledge your gold items and receive the loan amount in return. To do so, take the gold you want to pledge and the relevant documents to a lending institution. The lender measures the purity of the gold and calculates its weight before determining its valuation. Gold loans of up to 80% of the calculated value of the pledged gold will be authorised. The documents are checked after the worth of the pledged gold is determined. Your lender will accept your loan once everything appears to be in order and satisfying. You can apply for a gold loan via a bank's or NBFC's mobile application or official website. You must contact your lender at least once to deposit your gold articles in order to take advantage of the online gold loan. After that, you must register and link your bank account to the lender's online portal or mobile application. So, in the potential, if you need funds quickly, you will apply for a gold loan and get the available credit disbursed in your bank account in a matter of minutes, no matter where you are.
Key benefits of a gold loan
Below are some key advantages of a gold loan you need to consider while applying for a gold loan:
- Since gold loans are secured loans, they have fewer eligibility requirements and require less paperwork. It doesn't even request for a credit score to approve a loan. As a result, lenders usually disburse loans within a few hours.
- Usually, gold loans can be availed up to two years, after which the loan can be renewed.
- Gold loans, which are secured loans, have a lower interest rate than unsecured loans such as personal loans. You must keep gold articles as collateral for a gold loan. Banks will lend you up to 80% of the worth of your gold. The interest rate will be higher if the loan-to-value ratio is higher.
- You have adjustable repayment options for a gold loan. In the case of a gold loan, partial repayment is also possible.
- The approval of a gold loan is not dependent on your credit score. The loan amount is determined in the case of other loans based on the borrower's repayment potential and credit history, whereas in the case of a gold loan, the loan amount is determined based on the current market price of gold.
- Due to the fact that gold loans are secured by gold, lenders rarely ask for proof of income. As a result, anybody, whether or not they are employed, can apply for a gold loan.
- On gold loans, several banks and NBFCs charge no processing fees. And if a lender charges processing fees, they are usually 1 percent of the loan amount.
- Some lenders do not impose prepayment penalties, while others charge a 1% penalty.
Taxation on gold loan
Literally, millions of individuals around the country have been affected financially as a result of the latest pandemic. The effect has been much more severe in India. Already many individuals are yet to recover a solid financial foothold, despite the fact that the central and state governments are gradually easing the lockdown and enabling economic operations to resume. Under the terms of the Income Tax Act of 1961, you can receive tax benefits on loans such as a home loan. For a gold loan, though, this is not the same. If you have major home repairing costs or need to make upgrades depending on changing needs, you might be able to get tax incentives on your loan against gold. You can take out a loan on your gold assets to cover these costs, and thereby benefit from tax advantages on gold loans. You can use a gold loan to get tax benefits on assets other than property investment. When you sell those assets, though, the said advantage comes in during the fiscal year.If the total amount of gifts or gold earned within the year reaches Rs 50,000, the gold or a gold asset will be taxed at the time of receipt under the heading "Income from other sources." If you sell gold assets that were given to you or that you received, you must pay capital gains tax. Because the cost of purchase in the case of gifted or inherited gold is zero, you will have to pay capital gains tax on the entire sale amount of gold assets.
Gold Loan Interest Rates
Below are the top 5 banks that are currently providing the cheapest interest rates on gold loans:
|Banks||ROI in %|
|Punjab & Sind Bank||7.00|
|Bank of India||7.35|