Why Investing in Gold Loan Can be Wise

Gold loan is a simple way to overcome an financial crisis for a short-term. Read to know why investing in gold loan can be wise.

14 Sep,2022 11:55 IST 5 views
Why Investing in Gold Loan Can be Wise

The simplest method to overcome a short-term financial crisis is acquiring a gold loan. A loan on gold helps satisfy an economic necessity. They are perfect for handling minor financial difficulties in a business, dealing with cash flow problems when you need emergency cash, and consolidating debt.

At this time, when getting a loan is simpler than ever, banks and non-banking financial institutions are offering gold loans. Although there are many ways to get gold loans, is it a good idea to do so?

Understanding What Makes Gold Loans A Viable Investment

It is difficult to predict when a person or business will have to shoulder urgent financial responsibility. In such circumstances, gold loans are the ideal option. A few additional benefits of gold loans are as follows:

Relatively Lower Interest Rate

Currently, the interest rate on gold loans ranges from 9-10%. Although it differs in each financial institution, it generally falls within the same range. Secured loans often charge lower interest rates than unsecured loans.

Collateral Adds Leverage

By adding collateral to a gold loan, non-banking financial institutions or banks lower their interest rates. Higher collateral means lower interest rates. The reason is that these financial institutions can recover the loan amount if you default on payments and cannot repay the loan amount within the prescribed tenure.

Pay Principal Amount At The End Of The Tenure

Numerous financial institutions offer borrowers to pay interest only and clear the principal after the loan term. This payment option can help reduce the burden of repayment every month. However, this repayment structure applies specifically to gold loans.

Zero Hassle For Loan Approval

Obtaining a gold loan is simple and easy. You do not need to verify your credit history. Moreover, it is not necessary to verify income to obtain a gold loan. Also, there aren't any processing charges. Thus, unemployed individuals or people with poor credit histories can get a gold loan easily. However, since they have access to the pledged asset, gold loan lenders are confident about repayment.

It is essential to put up gold holdings as security for gold loans. In return, you get a portion of the gold's worth as a loan. Furthermore, a 75-90% loan-to-value (LTV) ratio applies to gold loans. Once you repay the loan balance, the lenders will return the gold collateral to you as a full and final settlement.

FAQ

Q1. What is the rate of interest on the gold loan?
Ans. The annual interest rate for gold loans ranges from 9-10 per cent.

Q2. Are gold loans secured or unsecured loans?
Ans. Gold loans fall into the category of secured loans as you are submitting your assets to the lender.

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