26 July 2011

Why gold loan is better than personal loan

Planning something as big as a wedding or may be purchasing an expensive birthday gift. And you have certain constraints in accomplishing this task when you running out of funds. What do you do when trapped in such a financial crisis? You would either use your credit card or avail for a personal loan? A better option would be to pledge your gold for a loan. Instead of keeping that gold jewelry, coins, bars locked in your locker, use it to meet your emergency. The interest rates are st
riking than personal loans. The interest rate depends on how much gold you offer to the lender as safety. So the more jewelery you pledge lower will be your interest rate. Interest rates generally vary between 10 percent and 20 percent. And for personal loan the interest rates are more than 20 percent.

Earlier it was the pawn brokers who dealt with this policy of lending money against gold, but now a large number of banks and non-banking financial companies (NBFCs) have entered this space. Gold loans are cheaper than most other loans, other than a home loan.

How does it work?
When you pledge your gold ornaments, the lender provides you with liquidity at a fixed rate of interest. Loans are certified after inspection of basic documents and satisfactory evaluation of the gold pledged. The amount is given in the form of cash, demand draft or sometimes even an account transfer. The amount is then disbursed in the form of cash, demand draft or sometimes even an account transfer. The process is quicker than personal loans.

Types of loan
Banks offer two kinds of loans against gold.

Term loan: You can take the full loan as a lump sum and repay only at maturity instead of paying back every month along with interest.

Overdraft facility: You can draw more money than your available bank balance. For this loan, you have to have a savings account with the bank. You can use the funds as and when required. In this, you pay interest on the amount of the overdraft that you use and the time you use it. The interest part is debited from your account at the end of each month.

The loan comes at fixed or floating interest rate of between 9.5 percent and 24 percent and varies from lender to lender. If you have a higher credit score, you to reduce the rate.

Whom to approach
Few public sector banks, such as Canara Bank and Allahabad Bank. Among private sector banks, ICICI Bank and HDFC Bank provide loan against gold. NBFCs such as Muthoot Finance and Reliance Consumer Finance also provide this loan. As these units are in dematerialized form, they are easily movable and easily en-cashable.