Is Gold Loan Secured?

29 May

Banking sector in the Indian financial system plays the most important role in shaping the economy. Banks in India offer various kinds of services, out of which the service of providing/granting loans is the utmost important. Banks provide various kinds of loans, namely education loan, car loan, home loan, gold loan, personal loan, and many more. Though there are different kinds of loans, the nature of a loan can either be secured or unsecured.

Secured and unsecured loans are the terms coined from the perspective of banks. Loans like education loans are unsecured loans, as the bank trusts the customer and grants an opportunity, whereas a gold loan is a secured loan, wherein the borrower pledges gold (either in the form of jewelry or biscuits or bricks) and asks for the loan. What a secured loan basically suggests is that the asset/property/gold which is pledged by the borrower would be kept with full security, and the borrower would be able to get his property back after paying the principal amount along with interest.

A gold loan grant asks the borrower to pledge any kind of gold (more pure than 18 Karats), to get the loan granted. It is similar to a home loan, wherein the bank asks the borrower to submit the official papers of any other property as collateral.

Secured loans are comparatively easy to get and hence are more in demand. Such loans guarantee money, time, and schemes to repay the loan on time. Banks also keep the pledged properties in high security vaults, so the borrower also gets a sense of satisfaction that his belongings are kept somewhere safe. Though to get the ownership of pledged assets back, the entire amount (principal amount + interest) must be paid. It is also true that interest rates on gold loans fluctuate a lot because of market volatility. Hence, availing gold loans in recession or when the market value of gold is low should not be considered as a good financing option. As higher interest rate equals higher payment within the same time.

Coming to defaulting in gold loan, banks increase the interest rate and charge late fees, credit/CIBIL score is negatively affected, the bank would blacklist your name from providing loans any further, and you would not be able to fund future operations via organized loans. The risk in availing a gold loan is that of losing the ownership of the gold endowed to the bank. Banks generally put the gold pledged by the borrower on auction so as to recover the amount they didn’t receive back.

Hence, every borrower must foremost go through the terms and conditions, must logically structure the loan repayment process, must check the Gold Loan Interest Rate along with the market price of gold, and then accordingly decide whether it is the right time/bank/policy to avail the loan. The gold loan interest rate can be checked using the gold loan EMI calculator from any credible website on the internet, and based on that the decision should be made.

These were a few security measures which secured loans adhere to. Secured loans also abstractly push the borrower to judiciously utilize the amount availed because of the fact that his property is in the hands of an external body; which means that secured loans also motivate the borrower to work with more precision and be concise with the monthly payment budget.

Gold loan is the most convenient option to get money for the short term, mainly because of lower interest rates (generally lower when compared to other kinds of loans). SBI Bank is one such bank which offers friendly interest rates and requires basic approval documents to grant the SBI gold loan.