Share
A Gold Loan is one of the most trusted alternatives to secure emergency funds. Not only is the process hassle-free, but the processing of Gold Loans is comparatively faster than traditional loans.
A very common question that arises among borrowers is whether a Gold Loan is secured or unsecured. Understanding this will only make it easy for you to make financial decisions.
What is a Gold Loan?
A Gold Loan involves taking a loan and keeping your gold items as collateral. The loan amount is usually a percentage of the collateral pledged and is applicable only for gold purity ranging between 18-carat to 24-carat.
As per the RBI guidelines, only 75% of the current market value of the gold can be provided to the borrower as a loan.
It is comparatively easier to secure a Gold Loan than a traditional loan. You need to submit the gold (that you wish to keep for pledging) with the required documents.
At Manappuram Finance Limited, officials will examine the gold and suggest the amount they can provide as loan against it. Once the loan is approved, your jewellery will be safe with us till you repay the loan amount. Once the entire loan is repaid, your gold will be released.
Borrowers tend to keep their gold items (jewellery, bars, coins) as pledge to fulfil their immediate need for funds, be it for medical, education, business expansion or any other personal needs.
Your loan amount is determined by the purity of gold and the amount of gold you are submitting as collateral.
Purity in gold is measured in karats. The loan amount is higher for 24-karat gold and keeps decreasing as the purity decreases.
Similarly, in the case of weight, only the gold’s weight will be considered. Any stones or metal weight will be excluded.
Is a Gold Loan Secured or Unsecured?
Gold Loans are considered secured loans. This classification is based on the fact that the borrowers are pledging their physical gold as collateral to secure a loan.
This builds confidence among the lenders that in case of a default, they can recoup their loan amount by auctioning the gold.
Lower risks on the part of the lender are also evident in the low interest rates of Gold Loans.
Borrowers can also benefit from a gold-secured loan. Because the loan is being given against gold, lenders are willing to offer the highest possible loan amount they are permitted to offer for the gold submitted.
The approval process for a Gold Loan is also typically faster than that for traditional loans. Traditional unsecured loans require several background checks, which makes the process lengthy.
However, with gold-secured loans, the process is much less complicated and requires far less documentation.
The presence of gold as collateral also diminishes the importance of the CBIL score. People with low CBIL scores can opt for a Gold Loan just as easily as people with good CBIL scores, which may not be possible in the case of an unsecured loan.
At Manappuram Finance Limited, Gold Loans can be secured against gold jewellery. The various types of gold options make it more flexible for a wide number of prospective borrowers.
Borrowers can get up to 75% of their pledged gold amount as a loan. Our eligibility criteria for the loan are also relatively simple.
You have to be a minimum age of 18 and should possess valid identity and address proof.
Why Are Gold Loans Considered Secured?
Gold Loans are considered secured loans because a collateral supports the loans. This significantly reduces the risk to the lender.
The basic crux of taking a Gold Loan is the borrower pledging their gold to the lender, against which the lender will give them a loan.
Since gold is a tangible asset, it provides confidence to the lender that in case there is a default, he can auction the gold to get back the remaining amount.
Unlike unsecured loans such as personal loans or credit card advances that hand out loans simply based on the borrowers’ creditworthiness, a tangible asset backs a gold-secured loan that reduces the lenders' risk of suffering from the loss of default payments.
A gold-secured loan is one of the most common ways to meet emergency expenditures. They carry low interest rates, flexible terms and conditions, and a hassle-free and fast approval process.
The eligibility criteria for a Gold Loan are also simpler. Instead of being judged on the basis of their CBIL score or income, the loan amount is determined based on the gold being submitted.
This makes it accessible to all who can use the money to pay their education or medical bills or fund their business.
Conclusion
So, when asked if a Gold Loan is secured or unsecured, the answer is that it is a secured loan. By giving your gold as collateral, you can borrow money with better terms.