Taking a loan against gold is known as a Gold Loan. It’s a type of secured loan where you have to physically pledge your gold as collateral to borrow money from the lending institution. These lending institutions can be a bank, local jewellers or any NBFCs (Non-Banking Financial Company). Once the amount is repaid in a fixed tenure, the pledged gold is retrieved from the lender. The quantum of money to be borrowed is decided through the purity and the market value of the pledged gold as collateral.
Taking a loan against gold has been a widespread practice in India for centuries. But in the 21st century, many people opt for approaching a legal, financial institution to avail themselves of a gold loan instead of local lenders. Getting a gold loan is relatively easier than other loans, such as home loans. And unlike many other secured loans, there are no restrictions on using the money borrowed. So taking a loan against gold is a good option to fund any urgent expenses.
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How do you take a Gold Loan?
Needs To Be Repaid The Required Age For Availing of a Gold Loan
Anyone 18 or above is qualified to apply for a gold loan by pledging their gold as collateral with a bank, local Jewellers, or any NBFC.
Required documentation
You’ll be required to submit a passport size photograph, identity proof, address proof, and your PAN card. In case a person doesn’t have a PAN card, they need to submit Form 10.
Availing the loan
Failed repayment
To avail of the loan, you need to apply for it to any bank or NBFC. Once you apply for the loan, the purity of the gold is assessed to determine the value that can be borrowed against it. The Reserve BLoan Against Goldank of India’s guidelines and directions read that previously amount up to 75% of the market value of the gold could be borrowed. But during the Covid 19 Pandemic, RBI provided a relaxation by enhancing the limit up to 90%. However, the prospective borrowers should keep a point in mind that this relaxation is available only in the Gold loans taken till 31st March 2021.
Sanctioning the loan
Failed repayment
Once all the required documents are in place and the lending amount is determined, most banks may disburse the loan within a few hours and, in most cases, on the same day.
Failed repayment
Repayment option and tenure
In general, there are four available options for the repayment of gold.
- Upfront interest, where you have to pay the total interest amount on your loan at the beginning of the tenure. Borrowers need to repay the principal sum at the end of the tenure.
- Bullet Repayment, where the borrower needs to pay the principal amount and the entire interest together at the tenure.
- Repayment as regular EMIs across the entire tenure.
Overdraft facility, where the interest is paid only on the utilized amounneeds to be repaidt.
The tenure for a gold loan is relatively smaller than a personal loan or LAP. The tenure may vary from one lending institution to another. But in general, the tenure for gold loan is from the period of 6 months to 13 months. With some institutions, the tenure can be extended with loan renewal at more interest cost.
Interest rates
The interest rates on gold loans are generally lower than other loans, such as loans against the credit card or personal loans. The interest rate on gold loans ranges from about 11% to 17%, varying with different lending institutions.
Fee and other charges
Depending on the bank or other lending institution, there may be additional charges involved. For example, processing fees, repayment fees or valuation fees, among many others.
Safety
The value of the pledged gold is more than the lending amount. So, the lending institution’s credibility is an important factor to consider while availing of a Gold loan. Applicants must borrow the loan from a licensed and reliable lending institution with a safe vault. You may want to avoid taking a loan from local jewellers to ensure credibility.
Bank or a Non-Banking Financial Company?
Both banks and NBFCs offer the same lending-to-value ratio of 90%. But banks have more competitive interest rates, and NBFCs have higher costs of funds. So, in general, banks offer lower interest rates than NBFCs. Besides, if you have an already existing account in a bank, then the loan terms offered may be better than what is offered to regular borrowers.
Needs To Be Repaid Failed repayment
In case if an individual fails to repay the loan in the agreed tenure, then after giving due notice, the lending institution has the right to take legal action
Repayment on or auction off the gold to recover the loan amount.
Due to the lower interest rate and flexible repayment option, taking a loan against gold is an easy way for funding. But before availing of the loan, it’s necessary to research How do you take a Gold Loan?he lending institutions with credibility and with loan terms aligning with your repayment capacity and feasibility.needs to be repaid
