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Everything You Should Know Before Availing a Gold Loan

Gold is a tangible asset and also the preferred precious metal for investments. The rate of interest on gold loans is around 8% lesser than that on personal loans, although it serves the same purpose as personal loans. Due to this, a gold loan is preferred over personal loans. But there are several factors that must be considered before applying for a gold loan, which are listed below:

Gold Loan Tenure

Gold loans are short duration loans. Most institutions give gold loan for a one year period and some may stretch it up to 24 months as well. So, before availing a gold loan you must be sure of repaying it in the specified duration.

Background Check on Lender

Gold loans can be availed from banks, NBFCs or even gold jewellers. Banks are a trustworthy source; but, for the other two types of lenders, a thorough credibility check is essential. Jewellers offer even lower interest rates as compared to banks, still you must completely trust the jeweller before taking a loan from them. The chances of frauds with jewellers and lesser known NBFCs are the highest.

Rate of Interest

The gold loan interest rates are not as high as those of personal loans. But interest rates are different in various banks, NBFCs and other local lenders. Gold loan interest rate can be anywhere between 9-20% depending on the type of lender.

Loan Amount

It is never possible to get 100% loan amount against the gold value. Gold loans offered, can be as low as 60% of the gold value and can go up to maximum 85-90%. However, this is completely subjective to the lending institution and its gold loan policies. The loan amount given is calculated in two ways. Either the last two weeks’ gold prices are averaged out or that particular day’s gold price is considered.

Repayment Process

The general repayment process in gold loan is that during the loan tenure, a borrower pays regular EMIs. Once the loan tenure ends and all remaining dues are cleared, the gold that is offered as security is returned back to the borrower.

Gold loans are not the most lucrative option but they are better than personal loans due to minimal paperwork required and lower interest rates. You can opt for a gold loan when you are sure that you would be able to pay the principal and interest dues within the loan repayment duration.

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