Troubles don’t knock the door before coming into one’s life. Instead, they make a sudden visit at the doorstep. For such unexpected situations, monetary resources can turn out to be a major relief. However, monetary resources are usually invested by us in some form of assets such as landed property and precious metals, and thus do not account for the real money in hand. This is where you can explore the greener side of the modern world which lets you use gold, one of the most prominent assets, directly in exchange for money.
Gold loan is a type of secured loan which indicates that the loan is provided against collateral in the form of gold ornaments or gold coins. You have to deposit your gold with the lender which can either be a Non Banking Financial Company (NBFC) or a bank and then you get the deposited gold ornaments or coins back only after you have paid back the entire loan amount including interest. Most gold loan providers charge only a small percentage, usually 3% to 5% over the base rate when providing a gold loan. Thus for a base rate of 10%, the interest on a gold loan can vary from 13%-15% per annum. The usual range of rate of interest varies from 12%-16%. Such a loan is usually taken for a short period for various reasons ranging from marriage and education to the sole purpose of investment (which is not advisable). Moreover, with the rise in gold rates the demand from companies and banks offering such loans has raised.
A link to the past
Gold loan is not a new phenomenon to Indians. It has been the main source of lending and raising money from the earliest days of financing. The origin goes back to a few centuries when it was the main item of barter and trade. Even after the emergence of a monetary economy, the yellow metal was used for minting the currency. Thus gold has been a medium of direct as well as indirect exchange all through the years. It has only gained further momentum in the recent past.
Advantages of Gold Loan
Gold loan carries with it several perks, leaving aside the basic benefit of convenience, which have been listed below.
● A major hurdle in the process of borrowing a loan is that of the certifications and documents required. Fortunately, a gold loan can be granted without any certificates of salary or income. Requirement of documents is also basic and thus a non-working or an unemployed individual can also apply for a gold loan.
● The rate of interest on gold loans is substantially less as compared to the rate of interest on personal loans.
● Agricultural loan against gold with a nominal rate of interest of 7%-8% comes as a respite to the agriculturalists.
● The borrower is given the choice to pay only the interest during the entire term and at the end of the tenure (s) he can pay the originally borrowed amount in a single shot. The processing time is also quite less. Consequently the hassle free and elementary procedure becomes an added advantage.
Disadvantages of Gold Loan
One of the major disadvantages of gold loan is that you stand to lose your pledged gold if you fail to repay your loan. This is a risk that most secure loans carry --- loss of collateral.
The other disadvantage is that gold loan repayment has no impact on your credit score. So, if you are looking to improve your credit score through gold loan repayment, then this is certainly not the option you should consider.
Gold Loan Providers
Leading institutions providing gold loan are classified under two categories: Non Banking Financial Companies (NBFCs) and banks (both private and public sector). Among the major NBFCs are Muthoot Finance, Mannapuram Finance and Bajaj Finserv while the leading players among banks are HDFC Bank, State Bank of India, Axis Bank and Allahabad Bank. Mannapuram Finance is the first listed gold loan provider and is still among the few leading ones. Mentioned below is a comparative study of the major gold loan providers, listing the approximate interest rates as in the year 2016.
Comparison of Gold Loan Rates and Schemes:
Bank
|
Interest Rates
|
Schemes
|
Andhra Bank
|
11.40% - 11.40%
|
EMI Scheme
|
Axis Bank
|
14.50% - 17.00%
|
EMI Scheme, Bullet
Repayment Scheme
|
Canara Bank
|
12.75% - 12.75%
|
Bullet Repayment
Scheme
|
Federal Bank
|
13.00% - 13.50%
|
Bullet Repayment
Scheme, Overdraft scheme
|
HDFC Bank
|
10.75% - 15.70%
|
EMI Scheme, Bullet
Repayment Scheme, Overdraft scheme
|
ICICI Bank
|
12.00% - 16.50%
|
EMI Scheme
|
Manappuram
|
12.00% - 26.00%
|
EMI Scheme, Bullet
Repayment Scheme
|
Muthoot Finance
|
14.00% - 24.00%
|
EMI Scheme, Bullet
Repayment Scheme
|
PNB
|
11.10% - 12.10%
|
EMI Scheme, Bullet
Repayment Scheme, Overdraft scheme
|
State
Bank of India
|
11.20% - 11.20%
|
EMI Scheme,
Overdraft scheme
|
Documents required
● Identity proof such as a passport, voter ID or driving license.
● Address proof such as the electricity bill, ration card, telephone bill etc.
● For signature proof you need to submit a self attested copy of your passport or driving license.
● 2 passport size photographs
Generic tips
● Lending institutions offer loan of up to 75% of the gold value, after checking the metal for purity and ascertaining its market price. Thus leave no uncertainty in the appraisal of the asset.
● While gold jewellery is perfectly acceptable to any bank or NBFC as collateral, bars are not accepted. NBFCs do not accept gold coins, though specific types of gold coins are accepted as collateral by banks.
● With the fall in the value of the dollar and the euro, gold might emerge as one of the leading forms of investment.
Recommendations
● Gold loan can transpire as a lucrative opportunity if strategized appropriately.
● Go ahead with the gold loan only when there is absolute clarity in the mind, regarding the repayment of the loan in the future. Else your collateral of gold would be transferred to and under the control of the provider.
● Evaluate your net profit by weighing the rate of interest of one provider against the other.
● Gauge other alternatives according to your requirement and make an informed decision.
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