For generations, in India, whether during financial emergencies or situations of urgent cash crunch, gold investments have emerged as a saviour unlike any other. As a commodity, it is also considered a reliable source of financial stability as its value is the same worldwide regardless of inflation or currency devaluation.
Even today in 2024, one can use gold to get loans quickly without any other major requirements including credit score, credit history, etc. In fact, according to reports, gold prices increased by nearly 23% in 2024 and may double by 2029 meaning they will be worth more than they were when you bought it thus enabling you to get a larger . However, before applying for gold loans, it is essential to understand the risks and key considerations involved.
What is a Gold Loan?
A gold loan is a secured loan where you can set up existing gold jewellery as collateral to get a loan against gold. Unlike unsecured loans, this loan type has lower interest rates as the lender keeps gold as a security for the repayment and will return this gold upon complete repayment of the loan.
This loan can be a great option for borrowers looking for short-term financing or those who do not want to lose the gold by selling it but wish to get some cash inflow for emergencies or cash crunch. Before going forward, let’s discuss its pros and cons:
| Pros | Cons |
| Gets quickly approved (primarily through gold loan apps like Bajaj Finserv) | Payback time is comparatively less |
| Lower interest rates | Amount borrowed is limited as per the value of gold |
| Includes less paperwork | If unable to repay, there’s always a risk of losing gold |
If you are considering taking a loan against gold, it is essential to understand its key features:
| Features | Details |
| Types | Regular, for Farmers, and Gold Overdraft |
| Documents Required | ID Proof, Address Proof and Gold Evaluation |
| Repayment Options | EMIs, Part Payments or Bullet Repayment |
| Loan Amount | Based on the percentage of the value of gold kept as collateral |
Risks Involved in Taking Out a Gold Loan
You must have understood that a loan against gold is an easy and convenient way to access funds, but it comes with its own set of risks. Before making any important decision, one must understand them in brief:
- Interest Rates: The rate of interest involved in this loan type can vary depending on the lender or change in terms. Though the interest rates are generally low, but if you have a poor credit history or choose a lender with unfavourable terms, then it may become higher.
- Gold Price Fluctuations: We all know that gold prices change regularly. If the price is low, it may reduce the value of your collateral and result in a lower loan amount.
- Short Repayment Tenure: Gold loans primarily offer borrowers a shorter repayment period than other loans. One should plan their finances accordingly and read all the documents carefully.
- Risk of Losing Gold: Due to its short repayment tenure, the loan carries a high risk of losing gold if the borrower fails to repay. The lender has the full right to sell or auction collateral to recover the outstanding amount if the loan amount and interest are not paid back by the due date. Borrowers must think it through before applying for a gold loan.
- Hidden Charges: Getting a gold loan might seem easy, but some lenders may impose extra charges to increase the expense, like processing fees or valuation charges. It is important to read all the documents carefully and clarify all your doubts before signing the agreement.
Key Considerations to Keep in Mind
When opting for a gold loan, there are various things to keep in mind to make sure that it aligns with your situation. The following considerations will help you make an informed decision and ensure seamless borrowing experience:
- Repayment Capacity: Only after evaluating the current financial situation and expenses can a decision be made about how much loan to take in order to repay it in the decided time. The repayment tenure of a gold loan is generally lower, so choose the repayment duration that aligns with your lending needs. For this, users can use online calculators to plan their finances.
- Gold Valuation: The current and future market value of gold must be carefully determined. If prices are expected to drop, then either consider other options or get the loan you need as soon as possible.
- Choose the Right Lender: Borrowers must opt for a trustworthy lender to keep the essential assets. A reputable lender will always be transparent, reducing the risk of hidden charges. Consider loans from financial institutions or download reliable gold instant loan apps like Bajaj Finserv.
- Compare Interest Rates: Research all the lenders, their terms and conditions, and, most importantly, the interest rates they charge. This will help you better understand the market and choose the right one.
- Read Documents Carefully: No matter where you are taking the loan, read all the documents thoroughly and discuss them with your friends and family. Carefully review each point, identify hidden charges and clarify the doubts before signing.
Read also: Tips for Finding the Best £1,500 Loan Rates
Conclusion
Gold loans are a great option for someone who wants funds quickly. While the loan has advantages, one needs to understand all its risks. Borrowers must know all the risks and the key points to consider before signing any document. Deep research about the current market conditions and trustworthy lenders should be made to make an informed decision about the loan and make the most out of it.
