What is a Gold Loan Program?
Contributed by Luigi Wewege At Caye International Bank
22 July, 2020
Leveraging assets in order to improve your financial position is always a good idea. You could have an asset at home that could be used to generate money to invest in other ways.
Depending on what you have in the way of gold, it is possible that you could qualify for a loan and invest the proceeds in some type of money-making investment venture. How would this work and what can you expect? Here are some basics that will help you get started.
How Does a Gold Loan Work?
A gold loan allows you to store gold and borrow against the asset. You will need to complete a lender's application that includes proof of ownership and the amount of gold you have on hand. Most lenders have a minimum amount of gold in order for an application to be reviewed.
Keep in mind that in order to be approved, you must meet all of the lender's requirements. Since those may vary slightly based on the lender's policies and procedures as well as the jurisdiction where the loan is established, acquaint yourself with what's required in advance. Even if you're turned away by one lender, it never hurts to consider what a different one has to offer.
If approved, you'll receive the loan amount in full, often by a transfer to your offshore checking or savings account. Like many other loan types, you will repay the loan using a series of installment payments.
What Sort of Information Must I Supply?
Much of the information that you will need to supply is familiar. As with most types of loans, you will need to provide proof of your identity, a permanent residence, and a valid bank account. You will also likely be required to provide confirmation of employment or information about your sources of income. The goal is to ensure that you have the financial resources to make the installment payments on time.
The lender may also require you to provide additional information. This can vary from one nation to another. For example, you may be required to provide copies of tax returns along with proof of income.
Is a Gold Loan a Secured Loan?
A gold loan is considered a secured loan. In order to be approved, you will need to pledge the gold as collateral or security for the loan. That pledge remains in effect for the life of the loan. Once you've repaid the amount borrowed, plus the applicable interest and any other fees, the gold will once again be yours to use in any way that you see fit.
Remember that selling the gold while the loan is ongoing is usually not allowed. For the time being, conduct your financial affairs as if you don't own the gold. If some pressing situation does arise, contact the lender at once and see what can be worked out.
Do I Have to Supply a Certain Amount of Gold?
Most lenders will require that applicants provide enough gold to reach a minimum value. That figure is often presented in US dollars. Keep in mind that you don't need a single gold item to reach that minimum value. You could pledge several items ranging from coins to jewelry.
Most lenders will require a minimum of at least USD $75,000. A more common figure is USD $100,000. Before you begin to fill out an application, ask about this figure and see how much is required. If the amount of gold you have doesn't carry enough value, consider approaching a different lender.
Who Holds the Gold for the Duration of the Loan Period?
With many secured loans, borrowers can retain physical possession of the pledged assets. That's not usually the case with gold loans. A more likely scenario is that you will temporarily surrender the gold to the lender. That lender will then place the gold with a secure third party who retains possession until you pay off the debt.
In the event that you default on the loan, the lender is free to retrieve the gold and sell it to settle the loan. Depending on the lender's policies and procedures, you may receive the difference once the loan balance, collection charges, and other costs are settled. At other times, the default is full, meaning that you will not receive anything that is left after the lender's expenses are paid in full.
How Much Can I Expect to Receive?
Don't expect to receive the currently appraised market value of your gold. Instead, the lender will offer a percentage of that figure. That's one more way that the lender keeps the risk of doing business with you to a minimum.
Perhaps you have gold that's currently valued at USD $200,000. The lender may offer a loan that amounts to 80% of that appraised value. You have the option of accepting the USD $160,000 loan or shopping around to see if you could lock in better terms.
Keep in mind that some banks offering higher percentages on the gold's value may also assess fees and charges that are a little higher. The result is that receiving more money on the front end may not benefit you to any great degree. It's possible that a lender who offers a maximum of 75% of the currently assessed value would also impose fewer fees and charges. In the long run, the latter lender may make the most financial sense for you.
What Happens if Gold Fluctuates in Value During the Loan's Duration?
While gold is generally thought to hold market value, there is some chance that it will fluctuate from time to time. That means what it's worth at the time you receive the loan could increase or decrease before the debt is settled in full. What happens to your loan if that happens?
If the amount you still owe on the loan is less than the current value of the gold used to secure the debt, nothing will change. You will continue to make the payments until the loan is paid off.
Should the value of the gold drop below the remaining loan balance, the lender may require that you make up the difference in addition to continuing to remit your installment payments. This may not happen if the difference happens to be a small one and you've already established a history of making payments on time.
When the gold increases in value, you can rest assured that the loan will not be affected. What might happen is that the lender may be willing to refinance the loan if you'd like to receive additional funding.
How Long Does It Take to Process a Gold Loan Application?
A lot depends on the information provided with the application and how long it takes to verify that data. Assuming that everything is in order, it's not impossible for the application to be processed in one business week or even a few days.
Assuming that the application is approved, you'll receive an offer along with the documents require to complete the loan process. Once you accept the offer and return the documentation, the lender transfers the funds to your bank account. Depending on your bank's policies regarding inbound funds transfers, the money may be available the same day or the following business day.
Put Your Gold to Work for You
Rather than allow your gold to languish at home, why not allow it to work for you? Use your gold as another avenue to get the capital needed to diversify your investments.
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