Types of Gold Loan & Their Benefits
A gold loan is a quick and easy way to get funds by pledging your gold jewellery. It’s a smart option for urgent financial needs. But before you apply, it’s good to know the different types of gold loans available. This guide will help you understand which gold loan suits your needs best.
What is a Gold Loan?
A gold loan is a secured loan where you pledge your gold jewellery or coins to get quick funds from a bank or financial institution. It’s a popular choice for meeting urgent expenses like medical bills, education fees, or business needs. The loan amount depends on the value of your gold, and you repay it through flexible options like EMI or bullet repayment.
The process is fast, with minimal paperwork. There are different types of gold loan options available to suit your needs, such as term loans, overdraft facilities, and EMI-based loans.
Types of Gold Loans Available in India
Here are the common types of gold loans available in India:
- Term Loan: You receive a lump sum against gold and repay it through fixed EMIs over a pre-agreed tenure with interest.
- Overdraft Facility: Withdraw money as needed within a limit and pay interest only on the used amount, not the entire sanctioned amount.
- Bullet Repayment: Repay both the principal and interest in one single payment at the end of the loan term, no monthly EMIs required.
- EMI-Based Loan: Repay the gold loan through easy monthly installments that include both principal and interest, offering a structured and manageable payment plan.
- Agricultural Gold Loan: Tailored for farmers, this loan offers lower interest rates and flexible terms to support farming-related expenses and seasonal cash flow.
Difference Between Repayment and Overdraft Gold Loans
When exploring different types of gold loans, it's essential to know the difference between repayment and overdraft options.
Repayment Gold Loan:
- Borrow a fixed amount against your gold: You pledge your gold and receive a set loan amount based on its current market value.
- Repay through EMIs or a one-time bullet payment: You can choose to repay the loan monthly in EMIs or pay the full amount at the end in one go.
- Interest is charged on the entire loan amount: From the day the loan is disbursed, interest is calculated on the full amount, regardless of how you use it.
- Comes with a fixed repayment schedule: You’ll have a predefined repayment plan, making it easier to budget and manage your monthly financial responsibilities without confusion.
Overdraft Gold Loan:
- Get a credit limit based on your gold’s value: The lender assigns a credit limit depending on the value of your gold, which you can use anytime.
- Withdraw money as and when needed: You don’t need to use the full limit at once—withdraw only what you need, whenever you need it.
- Interest is charged only on the amount used: Interest is calculated only on the portion of the credit limit you actually use, helping you save on extra costs.
- Offers flexibility, ideal for variable financial needs: This loan type is perfect for those with irregular expenses or fluctuating cash needs, offering convenient and flexible access to funds.
Exploring the Benefits of Different Gold Loan Types
Understanding the different types of gold loans can help you choose the best option based on your needs. Each loan type comes with unique benefits based on your repayment capacity and financial goals.
- Term Loan: Provides a fixed amount with regular EMIs, ideal for planned repayments.
- Overdraft Facility: Offers flexibility, allowing you to withdraw funds as needed and pay interest only on the amount used.
- Bullet Repayment: Pay the entire loan and interest at once, perfect for short-term financial needs.
- EMI-Based Loan: Breaks repayments into manageable monthly installments, making it easier to pay over time.
- Agricultural Gold Loan:Offers lower interest rates and flexible terms for farmers.
Frequently Asked Questions
The different types of gold loans include term loans, overdraft facilities, bullet repayment loans, EMI-based loans, and agricultural gold loans, each offering distinct benefits based on your financial needs.
A repayment gold loan works by pledging your gold as collateral, receiving a fixed loan amount, and repaying it through EMIs or a lump sum payment, with interest charged on the total loan amount.
An overdraft gold loan allows you to borrow against your gold up to a credit limit. You can withdraw funds as needed, paying interest only on the amount used, offering flexibility.
An overdraft gold loan is ideal for business purposes, offering flexibility to withdraw funds as needed and only paying interest on the amount used, making it suitable for fluctuating business expenses.
Gold loan interest rates for standard loans starting from 11.88% per annum, depending on policy, gold purity, loan amount, and tenure.
Disclaimer : The information in this blog is for general purposes only and may change without notice. It does not constitute legal, tax, or financial advice. Readers should seek professional guidance and make decisions at their own discretion. IIFL Finance is not liable for any reliance on this content. Read more
