Gold Loan: Know When To Go For It & When Not To

Indian investors place a high value on gold. This precious metal also holds social significance. People invest or purchase it during festivals. They are given as gifts and are an integral part of wedding ceremonies.

Furthermore, this gold is valuable during financial turbulence. A gold loan can help you meet your immediate financial needs when you need money. However, you must know when to apply for a gold loan and when not to. This blog will help you arrive at the right decision.

When Should You Take A Gold Loan?

1. When You Need Funds Quickly

The eligibility criteria and documentation for gold loans are relatively lenient, as they are secured loans. Your gold loan interest rate is lower than other loans, and you don't need a credit score to get approved. As a result, lenders usually disburse the loan within a few hours. Those in urgent need of cash can pledge their gold and receive funds almost immediately.

2. When You Don’t Have A Strong Credit History

A gold loan can be ideal if you have been rejected for a loan several times due to poor repayment history. Lenders won't check your credit history when giving you a gold loan. Your gold ornaments or bank-minted coins serve as security. Hence, individuals seeking loans with lenient eligibility requirements should consider gold loans.

3. When You Want A Higher Loan Amount

Gold loans allow you to borrow the maximum amount possible against the gold ornaments you pledge. Lenders typically determine loan amounts by looking at the Loan-to-Value Ratio (LTV). The typical LTV among financial institutions is up to 75%.

For example, if you have an overall value of gold of INR 10 lakh, you may obtain a minimum loan of INR 7.5 lakh and a maximum loan of INR 9 lakh. However, this LTV ratio varies from one lender to another.

When You Shouldn’t Take Out A Gold Loan

1. When You Can’t Afford To Lose Your Pledged Gold

The lender loans you money against your gold assets and after you repay the loan in full, the lender returns your ornaments.

However, if you fail to repay the loan or default, you will lose your assets as the lender will sell your ornaments to settle the loan amount. If you can't afford to lose your gold, don't apply for a loan on your gold.

2. When You Need Funds For A More Extended Time

A loan against gold is a short-term loan, typically between 12 and 36 months. Hence, you must ensure that you take a loan for a shorter time and can repay it within the specified period. A gold loan may not be a good option if you seek to repay the loan beyond the maximum tenure.

Apply For A Gold Loan With IIFL Finance

IIFL Finance is the leading provider of gold loan financing in India. The IIFL Finance gold Loan process offers the most affordable fees compared to other loan schemes. Our fee structure is transparent, so there will be no hidden fees.

We provide you with the best industry benefits by applying online and disbursing funds within 30 minutes. Moreover, our collateral maintenance system ensures the safe keeping of your gold jewellery.

FAQs

Q1. How does a gold loan affect my CIBIL score?
Ans. Missing payments on your gold loan will negatively affect your CIBIL score. Contrarily, your credit score will increase if you pay your bills on time.

Q2. What are the documents required for a gold loan?
Ans. Generally, the documents for a gold loan include:
• Identity proof
• Address proof
• Passport size photographs