Gold loan is a common and easy option to avail cash advance by mortgaging your jewellery. Lenders generally offer loan amounts upto 80 percent of the current market value of the gold pledged as collateral. Borrowers, with lower credit scores, can avail of this loan option to meet their financial emergencies. The loan disbursal process is usually quick as there is a minimum requirement for documentation. Since it is a secured loan option you are not required to furnish any other security or collateral in addition to the gold. Institutionalised gold loan options have become quite popular in recent years. However, many borrowers are apprehensive about this loan option as they fear that the gold jewellery may be stolen or replaced by the lender.

In reality does this happen? If you are availing a gold loan from a licenced non-banking finance company, the chances of your gold being stolen or replaced are down to almost zero.

The gold articles are kept in a vault in a strong room guarded with security arrangements. So, you can be rest assured to get the same article after repaying the loan. Additionally, the lender is legally bound to return your original article after the successful repayment of the loan.

Another common perception about gold loans is that they come with higher interest rates. However, it is not true and gold loans, in fact, have a lower interest rate compared to other secured loan options. Banks offering gold loans charge interest rates between 10 and 18 percent per annum. While the interest rates offered by NBFCs for gold loans may be higher, they tend to offer a higher loan-to-value ratio i.e. the amount available against the value of the pledged item.

A thorough market research and comparison between the different options available in the market is advisable before availing a gold loan. It may allow you to get a better deal.

Loans availed against gold items come with the flexibility of repayment. Most lenders do not charge any prepayment fee on such loans after completion of the minimum tenure. However, some lenders may charge a processing fee between 2 to 4 per cent on the outstanding principal amount. It is always advisable to negotiate the terms and conditions of prepayment during the loan application process.

Many borrowers are apprehensive of missing the loan repayment due dates. Well, gold jewellery offer a repayment guarantee to the lender, but they may not seize the pledged items immediately after a loan default. Some lenders give the option of repayment with additional interest for the overdue period. This rate is usually higher than the usual interest rate. However, the borrowers can repay the loan in the extra window and get their gold article back. In case the borrowers don’t pay the pending debt, the lender may send a notice informing the time within which you will have to clear the obligation.

Non-payment of a loan by the final notice date can also lead to lenders auctioning your gold articles to recover their outstanding loan amount.

In case you decide to go for a gold loan, go through the terms and conditions before finalising the deal.