A loan in which the customer pledges his gold coins or gold jewellery as security against the loan amount is known as a gold loan.
The process is very simple and fast as the customer just needs to visit the nearest lender’s branch with the gold coins or jewellery that he wants to pledge. The gold is then assessed and about 60% to 75% of the gold’s market value is then released as the loan amount to the customer in under 2 hours. There is very minimal documentation needed for a gold loan. Some of the documents that are generally asked for are passport, driving license, Aadhaar card, voter ID, PAN card or Form 60. As gold loans are secured loans, you do not need to provide the bank with any proof of income. This is a very big benefit for unemployed individuals who are in urgent need for funds. The gold is then locked away safely in a vault and given back to the customer when the loan is repaid in full.
Individuals with a poor credit score can also get a gold loan as the gold is used as collateral and the lenders are not worried about the credit score or credit history of the individual.
Interest rates for a gold loan begin at 9.95% and can go up to 16% depending on the credit profile of the individual. The interest rates are low as the lender does not have a risk factor involved, since it is a secured loan.
The tenures for a gold loan are generally very short and range from 3 months to 4 years in some cases.
If you do not have a credit score or have a bad credit score, then a gold loan can help you build or improve your credit score if you make all your monthly payments on time. So, they can act as good score builders.