The contemporary banking and financial institutions have come a long way; their evolution has been a game-changer for businesses and individuals alike. Gold has always been used as a benchmark for judging financial prosperity. Even in the modern era, gold loan is a popular financing method for many people. Gold was the stepping stone for the formation of present-day banks and financial houses that indulge in channeling funds from investors to lenders.
Before the 1920s, the gold standard was widely used as a monetary system, and the currency values were linked to gold. The present-day fiat money backed by the governments of respective nations replaced the gold standard eventually. Now that we have understood how gold has always been a significant element attached to the banking sector, let's delve deeper into what a gold loan is and how does it work out.
Understanding the basics of a gold loan will help you a great deal if you are looking forward to taking one. The gold loan can be understood as a type of secure loan taken by the borrowing party from the lending party. Here, gold articles are pledged as collateral and act as a safety net for the lender. Usually, the loan amount granted to the borrower is less than 75% of the gold value. The worth of gold articles is computed at the current market standards.
Gold loans are very similar to a personal loan in the sense that it allows you to meet your financial needs instantly. People generally opt for a loan against gold to finance home renovation or purchase, cover medical liabilities, capital requirement for business, etc. Most of these expenses are categorized under the personal needs section. Gold loans have some significant advantages that make it the perfect solution for individual financial needs.
The gold loans are secured, which makes it less risky for the lender; therefore, the documentation process is straightforward and doesn't require extraordinary measures. It provides you with the ultimate flexibility to use the money as per your needs and requirements without any speculations and intrusions. Also, in the case of gold loans, you are not overwhelmed by the lender to provide any additional collateral.
In addition to all these, the interest rate on the gold loan is usually lower as compared to personal loans. These were some of the important details and facts about gold loans. Now that we have a proper understanding of what a gold loan is, let's explore some of the popular myths about the same.
There are a lot of myths associated with taking a gold loan that deters individuals from opting for this simple financial tool. Some of the mainstream myths and their relevant facts associated with gold loans are mentioned below:
1. The first and foremost myth regarding gold loans is that only jewellers and jewellery shops offer it. This myth is deep-rooted, and people who don't have much knowledge regarding gold loans are left with only one option. The alternative gold loan providers like banks and Non-Banking Financial Corporations (NBFC) also have gold loan plans for borrowers which are more secure and systematic. The interest rate is also on the lower side.
2. People are often scared about their gold articles being stolen or replaced with fake lookalikes. This is far from the truth when you are taking a gold loan from a reputed bank and financial institutions like Shriram City Union Finance. The gold pledged to these institutions is stored under vaults that have robust security arrangements in place. Reputed finance houses also guarantee the safety of your gold article. You will be returned the same gold article after you repay the loan amount.
3. The third myth is that gold loans have the lowest interest. The truth, in this case, is subjective. Not all gold loans have a low interest rate. The interest charged on gold loans is determined by the borrower's profile, CIBIL score (the CIBIL score is a three-digit number that tells if a person is credit-worthy), and the type of lender chosen by the borrower. The interest rates are lower when you compare it with personal loans, but it is highly subjective too. Shriram City Union Finance has one of the most affordable gold loan plans in the market which you can easily avail at Simple Rate Of Interest.
4. People usually have a perception in mind that their gold articles cannot be used for gold loans because the articles are ancient. This is false, the government has issued guidelines regarding the quality of the gold articles, but it has not said that old ones can't be used to avail a gold loan. The purity of gold article is the only determinant, and as per the guidelines, it must be of at least 18 Karats.
5. The last myth we are going to talk about is related to the gold loan process. People usually think that the gold loan process is complicated and time-consuming. It is not true at all, gold loans have a swift processing time, and it often gets approved and processed during the same day. It requires basic KYC document verification to complete the loan disbursal process& it is the fastest way of raising funds.