Facts and Myths about Gold Loan
Modern banking and financial institutions have altered the playing ground for both businesses and individuals. For many years, gold has been used as a benchmark to assess economic progress. Many people still frequently use gold loans as a source of funding nowadays. Modern banks and financial organizations, which practice the technique of directing money from investors to lenders, were founded on the foundation of gold.
Facts about gold loans
It will be very helpful for you to comprehend the basics of a gold loan if you intend to take one out. You can think of the gold loan as a particular, secured loan that the lending party gave the borrower. In this case, gold goods are presented as collateral, acting as a safety net for the lender. Usually, the borrower receives a loan for no more than 75% of the gold’s value. Items made of gold are valued based on their current market value.
Personal loans and gold loans are pretty similar in that both allow you to rapidly meet your financial needs. Loans backed by gold are frequently used to finance home improvements or purchases, cover medical costs, satisfy working capital requirements for businesses, etc. Most of these expenses are classified as “personal necessities.” Due to its numerous significant advantages, gold loans are the best option for resolving particular financial problems.
A gold loan also often offers lower interest rates than personal loans in addition to all of these advantages. These were a few essential tidbits of knowledge regarding gold loans. Now that we are clear on what gold loans are, let’s look at some frequent misconceptions regarding them.
Facts and myths
There are several misconceptions about receiving a gold loan that deter people from adopting this simple financial tool. The typical misconceptions concerning gold loans are listed below, along with the relevant information that disproves them:
The loan is only offered by jewelers and jewelry retailers.
The main fallacy regarding gold loans is that only jewelers and jewelry retailers offer them. People who are inexperienced with gold loans are only left with one option due to the pervasive nature of this misperception. Banks and non-banking financial corporations, among other alternative gold loan providers, offer more regulated and organized gold loan schemes (NBFC). The interest rate is also rather low.
Gold shall perish.
Some people believe that after being pledged, there is a considerable risk the gold will be sold or lost. However, that is a misconception. The collateral offered by the borrower as payment for a gold loan will be held in safekeeping. To prevent the pledged valuables from being used for illicit purposes or being sold at auction without the borrower’s consent, gold loan lenders follow stringent security procedures.
There is a low-interest rate.
Another urban legend holds that gold loans have the lowest interest rates. There is no objective truth in the present circumstance. Gold loans do not usually have low-interest rates. The interest rate for gold loans is influenced by the borrower’s profile, CIBIL score, and the type of lender they select. Creditworthiness is determined using a person’s three-digit CIBIL score. The rates for gold loans are less expensive than personal loans, but they are also quite personalized.
Old gold goods are useless.
The common belief is that because gold goods age, they cannot be used as collateral for gold loans. It is incorrect that older items cannot be used to acquire gold loans, despite the government has established rules for the quality of gold products. The main consideration is the purity of the gold, which must be at least 18 Karats in accordance with the regulations.
Loan application is challenging
The gold loan process is the subject of the last myth we’ll address. The process of obtaining a gold loan is typically thought to be complicated and time-consuming. That gold loans take a long time to process is absolutely wrong; in fact, they routinely get accepted and closed on the same day. The quickest way to raise money is through loan disbursement, which requires only a quick document KYC verification.
You can see how much easier it is to get a Gold loan in an emergency. If you have any extra gold that isn’t being used, you may request a gold loan and put it to good use rather than having it locked away in your locker. A gold loan can be useful whenever you require a sizable sum of money, such as for a wedding, college expenses, a sizable party, etc. A medical emergency is an illustration of an emergency situation. The widespread misconceptions about gold loans should also not come as a surprise.