Your credit score heavily impacts your chances of getting a personal loan. So, if your application for a personal loan has been denied because of a low score (below 700), do not repeatedly apply for a personal loan with multiple banks (as this may further decrease your score due to numerous banks performing hard inquiries on your CIBIL). Only don’t lose faith. A Gold Loan will come to meet your liquidity requirements.
What’s a Gold loan?
It’s a loan obtained from a lender by the borrower by pledging their gold products as collateral (within a limit of 18-24 carats). A certain proportion of gold, usually up to 80 percent, depending on the current market value and gold condition, is the loan sum given.
Factors to consider to get the Lowest Gold Loan Interest Rate
- Inflation: The interest rate on gold loans is strongly influenced by inflation. This is because the price of the currency drops due to inflation, and people prefer keeping capital in the form of gold. Thus, as inflation is extended for a long duration, gold prices are higher.
- Gold price: The lender would offer a lower interest rate on the gold debt in the event of high gold prices in the market because the probability of the risk involved in repayment is limited.
- Borrower’s relations with Lender: At times, gold loans are provided to current clients of the bank at an attractive interest rate. Therefore, whether you are affiliated with the lender in some manner by a savings account, an FD, a loan account or some other sort, the interest rate of the gold loan given to you by this same lender may be lower. For an affordable deal, existing consumers can even bargain with their bank.
- Demand and availability of gold: Since it has cultural and traditional connotations associated with it, gold occupies a special place in the Indian household. Thus, during festivals and wedding seasons, it is in tremendous demand. Thus, an increase in the market for gold leads to a rise in the interest rate for gold loans.
Good credit scores for Gold Loans are not relevant
- RBI made it compulsory for banks to do a CIBIL score check before handing out any loans to borrowers. Personal loans are more precarious for a bank since they are unsecured loans. A strong CIBIL score gives the bank more faith in your repayment performance, among other factors. Therefore, an excellent score is required for the success of your Loan request.
- Gold loans, on the other hand, require you to provide as collateral a reasonably liquid tangible commodity, i.e., gold. Despite your less than favourable credit score, banks are more likely to give you a loan because your gold commodity serves as a safeguard and saves them from the possibility of default.
Thus, when personal loans are not feasible for you, gold loans can be a safe alternative during a desperate need.
Gold Loans can boost your CIBIL score
There are many benefits of gold loans, such as competitive interest rates, flexibility and affordability. But one benefit especially stands out – it will help you raise your CIBIL score and will open opportunities for other loans in the future.
Take gold from NBFCs
Banks conduct a strict examination on credit reports which can lead to a hard enquiry resulting in negatively affecting your credit score. Hence, it would be prudent if you approach an NBFC for flexible terms and conditions and loan process. The only catch is NBFCs charge much higher interest rates than banks.
Point to remember after taking the Gold Loan
Timely Repayment: Make sure that you pay your EMIs on or before the due date, if possible. Timely EMI payments will have a favourable impact on your ranking. Keep disciplined, and you’ll end up with a decent CIBIL score over time.
Collateral Auction Avoidance: While some lenders will be lenient and will not pull you up due to one or two late EMI payments, your score may be adversely affected, and your gold will be put at risk. Stretch the finances, but at all costs, don’t forget to pay.
What are the usual rates of interest and processing fees?
Interest rates for gold loans vary from lender to lender. The Lowest Gold Loan Interest Rate starts from 9.24 and reaches maximum to 17%. Some lenders charge processing fees between 1-3%.
Documents required to vary from lender to lender. Some standard documents asked by most of the lenders are:
- Aadhar/PAN/Voter Id for proof of identification
- Photographs (passport size)
- Proof residence (Driver’s license/Electricity bill/Passport etc.)
Conclusion: Please note that while it might be safer to procure gold loans, for the length of the loan, you will place your valuable properties at stake, which may be suitable as an emergency measure, but not ideal in the long run. If possible, actively look to increase your score and transfer to an unsecured loan as soon as you have the chance.