Selling Gold or Loan Against Gold – Which is Better?

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Selling Gold or Loan Against Gold – Which is Better?

Gold has been more than a commodity in Indian households. The precious yellow metal is an auspicious symbol of prosperity and good tidings. So no wonder every Indian celebration is incomplete without gold, and purchases skyrocket on occasions like Dhanteras and Akshay Tritiya. Yet, when you are faced with an acute financial crisis needing immediate cash, you fall back upon the asset to tide over the financial emergency. But your predicament is whether to sell it or take a loan. So let us dig deeper for answers to the dilemma.

Sell gold or take a loan?

Overcoming the average Indian’s strong emotional bond with gold is tricky. So consider several factors. First, the process is simple at all the banks, NBFCs and gold loan companies such as Muthoot FinCorp offer tailored loans against gold schemes to suit your specific requirements. Second, the interest you pay for the pledged gold is far lesser than the making charges imposed, reducing your loss. Third and most importantly, you get back the gold asset intact after liquidating the loan. So, why not further explore the facility?

Loan against Gold Highlights

Gold loans are aplenty in the Indian financial market. So, you can always check on the online gold loan calculator to work out the financials before applying to your chosen lender. So, let us see what is on the gold loan platter.

❖ Instant Disbursal:

Loan against gold processing is swift, and so is the disbursal, requiring minimal documentation.

❖ Secured Collateral:

The gold pledged at the lender is lodged in their locker under a sealed cover as collateral. Thus, it mitigates your asset’s safety concerns.

❖ Competitive Interest Rates:

The interest rates applied on your loan against gold is based on the loan type – Overdraft or Term Loan, amount, and tenure. Currently, the rate varies from 9% to 15% across lenders.

❖ Loan Quantum:

Lenders are bound under the RBI’s directive restricting a gold loan to a maximum of the percentage of pledged asset’s current market value. Thus, evaluating your pledged gold’s purity vis-à-vis the market rate determines the LTV (Loan to Value).

❖ Flexible Tenure:

Choose flexible repayment tenure based on your financial resources and short-term cash needs. Thus, you can repay the loan in a few days or up to 3 years.

❖ Multiple Purposes:

The lender does not impose any bar on the disbursed loan usage. Thus, you are free to use the loan to meet your personal and business commitments.

Loan against gold working principle

Your lender assesses the gold items using the expertise of an approved and enlisted valuer to determine their market value. Accordingly, the LTV is fixed. On accepting the terms, the loan is disbursed to the credit of your account for use.

The standard repayments are in EMIs or bullet payments before the tenure expires. In addition, you can choose to pay the accrued interest in fixed EMIs, and the principal as a bullet payment at maturity.

Points to note before applying

The gold loan calculator is the best option before approaching the lender for short-term financial needs. It is an online tool to work out the financials in a few steps. Thus, you are already aware of the basics while pledging your gold assets as collateral. Yet, consider the following:

 ❖ Fluctuating Quantum:

The loan quantum is based on the gold’s market value based on its purity – bars, jewellery, coins etc. Thus, the loan LTV fluctuates depending on the current gold rates and may not fully cover your requirement.

 ❖ Asset Risk:

As already mentioned, a loan against gold is a secured loan, implying that the pledged collateral is liquidated if you fail in your loan obligations. Moreover, the lender can invoke the right to recover the loan by auctioning the gold items in their safe custody. Therefore, there is always the risk of losing your gold asset upon default.

Summing up

When considering your gold asset as the only recourse to meet an emergent cash crunch, it is far better to use a loan rather than sell it. Loan against gold is among the most effortless processed facility offered by gold loan companies at a reasonable cost. However, it is sensible first to assess your financial health, use the gold loan calculator, and seek professional guidance to make an informed decision.

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