The very mention of term gold brings a distinct glitter in thoughts. Not only is gold dear to all Indians but is also a possession that adds to prestige and security alike. Gold that has historically been used as a medium of trade on one hand, on the other has also been used to create beautiful ornaments. The ornaments in India by all standards are treated as a sacred and valuable asset. And if one has to pledge these ornaments, the fear of these getting destroyed or mutated is quite natural. So if you are looking at raising that short term funding through the gold ornaments you must read on to know how actually the gold loan works.
Custody of pledged ornaments
Custody of ornaments while could be a point of anxiety for most borrowers who are taking these gold loans route to raise funds, but they should know that the ornaments are kept in safe custody. Each customer’s ornaments are valued, marked and kept in the safe. There are procedures in place to retrieve the pledged gold and there are processes in place. Due diligence is followed by the lending institutions to keep the ornaments safe.
Repayment of loan
All borrowers who are pledging their precious metal should be aware of the basics of this form of credit. The same are as follows:
The gold loans are generally given for a period of 12 months. One can opt for one of the two options available for repayment of the loan. Either one can pay in equated monthly installments or one can opt for paying only the interest every month and then repaying the principal amount in one go and get the gold released. Post 12 months, one can get the loan renewed for another year in the event of not being in a position to repay the amount.
The question that may arise in one’s mind is as to why does the loan gets sanctioned only for a period limited to 12 months? This is for the reason that gold prices are subject to fluctuation and may undergo a change in short period. So the borrower would be required to complete a small formality by visiting the brand and opening a new loan account by closing the old one.
This could also be beneficial for the borrower in case the prices of the metal improve. One would be able to derive better loan amount if this happens.
Ornament status in situation of a default
The banks and lending institutions have the authority to liquidate the asset and recover their money in case the person is unable to repay the amount. However, the ornaments are not sold off immediately, even if they have the authority and required agreement in place to do so. They shall wait for a certain period ( that usually is for a few months ), remind the debtor and in case there is no recourse then would sell off the ornaments. While the default would lead to having to see one’s name in loan defaulter list, it would also lead to losing out the precious ornaments that do carry some emotional value ( on account of being purchased on an occasion or having been gifted by someone ).
The gold that has been pledged is safe only till the loan gets repaid as per the terms. The companies will not alter or destroy the ornaments of make changes to the other forms of gold received by them in good faith from the mortgagor. One would be able to receive them back upon complete repayment of the loan amount.
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