So, just when you thought it was safe to take a breath, something unexpected happens, and there is an urgent medical expense or your son or daughter announces their unexpected engagement, and you find your carefully planned lifesavings unequal to the task. So what do you do? You take out a loan.

There are various kinds of loans available to the discerning borrower. There is an unsecured personal loan or options that allow you to take out loans against personal property, securities like stocks or even against insurance policies.

But a very popular type of loan is the gold loan. So let’s get into it.

Introduction to Gold Loans:
A gold loan is, as its name implies, when a borrower takes out a ​loan against gold jewellery. The gold is given over to the bank or lender as an assurance and kept securely until the loan and all interest are paid off, at which point it is returned to the owner. 

Gold loans are popular for several reasons; the first is that since gold is so easily liquidable, it means that loans taken against it have a much quicker rate of disbursal, that is to say, you get the money much quicker. Some banks and other financial institutions might even offer instant or across-the-table loans where you are able to get the funds on the same day. And are open to all types of individuals, from employed individuals who earn a regular salary, to self-employed business owners, to even agriculturalists.  All of which makes it a very attractive option to borrowers or would-be borrowers.

The gold loan eligibility requirements are also far less strict than with other loans; borrowers do not need to have a credit score and need to submit only minimal documentation, usually it only requires proof of identity, which can be a passport, an Aadhar card or a voter ID, proof of address and passport-size photographs.

The gold in question is typically required to have a purity value between 17 and 25 karats and can be accepted in the form of jewellery, coins, or bars. A higher purity level means you can get a larger loan, with the size of the loan depending on the average market rate for the gold over a certain period of time, typically thirty days to a month. But, the gold loan also has a relatively higher LTV  (Loan to Value) percentage, and can be up to 75% of the value of the offered goal. 
Furthermore, the gold loan interest rate is far more affordable than that of other loan types, especially the unsecured loan. Furthermore, Indian houses and South Asian houses tend to own a great deal of gold, making this loan accessible to them.

Conclusion:

Gold loans are typically for shorter tenures and tend to be for periods under a year and over a week. So, while convenient and easy to obtain, it is definitely not a long-term or indefinite expense. Like all loans, a gold loan is to be taken seriously; it isn’t something to just rush into unprepared and without thought. It is important to remember that if you fail to repay the loan, the institution has the right to sell your gold to recover its money. So, to avoid paying the loan and any interest in a timely manner.