A gold loan is a type of secured loan where borrowers use their gold as collateral for the loan amount. These loans are typically preferred by individuals facing financial difficulties or limited access to other types of credit options. The gold ornaments or jewellery act as collateral for the loan amount, and lenders value the gold based on parameters such as its weight, purity, and current market price.
Gold loans come with many advantages, including lower interest rates and a faster sanctioning and disbursal process compared to unsecured loans. These loans also do not require the borrower to have a high credit score or consistent income stream, so they can be an accessible credit option for many.
Here are some elements that define a gold loan:
Collateral – A critical aspect of a gold loan is that it requires the borrower to pledge their gold ornaments or jewellery as collateral. The lender holds this collateral to ensure repayment of the loan amount. Lenders carefully examine the gold value, based on factors like weight, purity, and the current market price of the gold before releasing the funds.
Interest rate – Interest rates on gold loans are generally lower than other types of unsecured loans. This is because the gold acts as collateral for the loan. Due to this security, lenders feel comfortable keeping interest rates lower as the risk for the lender is relatively lower than that of an unsecured loan.
Loan amount – The loan amount that the borrower gets sanctioned is a certain percentage of the gold’s market value that they pledge as collateral. Lenders assess the loan amount based on the gold’s weight, purity, and market value. Some lenders might also offer a higher loan amount, depending on the borrower’s financial and employment history.
Repayment tenures – Most lenders offer flexible repayment tenures ranging from a few months to a few years, based on mutual agreement. Borrowers can select the loan tenure based on their repayment capacity, and the prepayment charges, if any.
A gold loan is a secured loan where the borrower pledges their gold ornaments or jewellery as collateral to the lender in exchange for a loan amount. One of the benefits of a gold loan is that the repayment options are flexible, and borrowers can choose the loan tenure based on their repayment capacity. However, repaying a gold loan ahead of schedule can offer several advantages that borrowers should consider.
Here are some benefits of paying back gold loans ahead of schedule:
1. Lower interest payments: When a borrower repays the gold loan ahead of schedule, they save on the interest payable on the outstanding loan amount. Even if the interest rate is lower, repaying the loan ahead of schedule can still result in significant interest savings over the loan period.
2. Improved credit score: Timely repayment of any loan, including a gold loan, can help improve the borrower’s credit score. A higher credit score indicates that the borrower has a lower chance of defaulting on future loans, and improves their chance of being approved for loans and credit cards with better terms and conditions.
3. Increased credibility: Paying back a gold loan ahead of schedule is a demonstration of financial responsibility and creditworthiness. This can lead to increased credibility in the eyes of the lender, making it more likely for them to approve future loan applications and offer better interest rates.
However, before repaying the gold loan ahead of schedule, borrowers should evaluate their financial situation and ensure that it is the most viable option. Here are some factors to consider:
1. Prepayment charges: Some lenders levy a prepayment charge if the borrower repays the loan ahead of schedule. The prepayment charge, if any, can be a percentage of the outstanding loan amount, and it is important to factor it into the overall interest savings.
2. Alternatives for funds: Borrowers should consider other options for utilizing the funds before repaying the gold loan ahead of schedule. The borrower must assess whether the funds could be better utilised elsewhere, such as investing in a business or paying off higher-interest loans.
Best apps to avail a gold loan ahead of schedule
Borrowers can utilize mobile apps offered by financial institutions to apply for and obtain gold loans faster and more efficiently. Here are some of the best apps in the UK to obtain a gold loan:
1. Bajaj Finserv App: The Bajaj Finserv app is one of the most significant providers of gold loans, and it offers competitive interest rates with minimal documentation involved. The app enables borrowers to track their loan application status and repayment schedule, allowing them to choose when and how to repay ahead of schedule.
2. Rupeek: Rupeek is another highly-rated gold loan app. They offer competitive interest rates, quick disbursal of funds, and no prepayment charges. The app also enables borrowers to track their loan application status and manage their repayments.
3. Muthoot Fincorp: The Muthoot Fincorp app has a process which involves minimal documentation and quick disbursal of funds. The app also enables borrowers to track their loan application status and repayment schedule, allowing for timely repayments.
Repaying a gold loan ahead of schedule can offer several benefits, including lower interest payments, improved credit scores, and increased credibility. However, borrowers should evaluate their financial situation and consider prepayment charges and alternative uses for funds before deciding to repay the gold loan early. Utilising mobile apps offered by lending institutions such as the Bajaj Finserv app, Rupeek, and Muthoot Fincorp can facilitate easier and faster obtainment of gold loans, making it more convenient for borrowers to choose their repayment schedules and repay ahead of schedule.
Gold loans are a viable option for individuals who require quick access to funds, have a low or inconsistent income stream and limited access to credit options. Since the gold pledged acts as collateral, lenders do not rely on the borrower’s credit history or creditworthiness to sanction the loan. Mobile apps from lenders such as the Bajaj Finserv app and others offer a convenient method to avail of a gold loan today and can be an ideal alternative for those who require quick and easy access to funds.