Loan against gold is an easy process wherein you need to pledge your gold ornaments. to the lender (bank or the NBFC) and in return get a loan at a predetermined rate of interest. Such loans are commonly referred to as gold loans. These are secured loans that are procured in exchange for gold jewelry. Taking loan against gold in unexpected crisis is a way better option than applying for a personal loan, but only if you have a considerable amount of gold to keep as collateral. The process to take a loan against gold is fairly simple and less time-taking. Also, documentation and the paperwork involved in the gold loan are less intrusive as compared to other loan types.
Here’s how you can take a loan against gold
Earlier there were just a few firms and local gold loan providers which offered loan against gold. However today every bank and Non-Banking Financial Institutions offer gold loans at an attractive interest rate.
Documentation
Borrowers applying for a loan against gold need not have to furnish a huge list of documents, just an income or address proof or sometimes both are required. Furthermore, a gold loan requires no credit score. This is the reason why gold loans have been gaining popularity nowadays. The documents required in the process of taking a loan against gold are:-
1. Duly filled application form
2. One passport sized photograph
3. An identity proof (Voter ID/Pan Card/Passport)
4. Address proof (Ration Card/Passport/Electricity Bill/Rent Agreement/Driving License/Passport)
Quantum of loan against gold
Traditionally, you can avail up to 60 percent of the value of gold ornaments as a loan. But some banks also consider factors such as purity of gold, the tenure of loan etc. to determine the amount of loan that is to be sanctioned. Plus, gold loan borrowers are also entitled to subsidiary benefits provided by the Indian government.
The evaluation of Gold
The procedure to evaluate gold differs widely across banks in India. But in general, all the hallmark jewelry is evaluated on the basis of purity, weight and the current market value of gold. The value of stones if embedded in the gold jewelry is not considered. However for any jewelry without the hallmark sign, the purity of gold is questionable hence the lenders may end up allowing a lesser amount of loan.
Deposit of Gold
Soon after borrower decides to sign up for gold loan and submits the duly filled application form, an agreement is signed between the bank and the customer, after which the gold coins or jewelry gets deposited with the bank and the loan amount is disbursed. Ideally, the bank keeps the custody of gold until the time the entire loan amount is repaid by the customers, which is generally 12-18 months.
Default in payment
In case the customer fails to repay the loan on time, the bank is free to sell the gold that is kept as collateral and balance out all loan dues as mentioned in the loan agreement.
Processing fee and other charges
The banks do charge a loan processing fee and a gold valuation fee which is to be borne by the customer.
Interest rates
The interest rates offered on loan against gold is more attractive than personal loans. But one important point that should be noted here is that the interest on the gold loan depends largely on the amount of safety you give to the lender which means the higher will be the amount of jewelry kept as collateral the lower will be your loan interest rate and vice versa. Generally, the interest rates on gold loans vary between 10% and 20%. Plus lenders also offer several schemes for the loan applicants at a reduced interest rate if the loan is repaid within a diminutive period of one month or so on.
Key features of a gold loan
1. Loan against gold can also be paid out by the bank in just one day if all the documents, application form, etc are appropriate.
2. On an average, borrowers get 60% of the values of gold that is kept as collateral but some banks do offer 80 to 90% of the gold value.
3. Availing a loan against gold does not mean that you are selling it for contingency. Once the entire loan amount is paid off, the bank returns your gold.
4. Loan against gold can be closed anytime you want by making the payment in full. There is no penalty for pre-closing the loan.
5. On an average, the loan against gold can be taken from 3 months to 3 years.
6. Individuals of a low-income group can also apply for this loan against gold conveniently if they do not qualify for other types of loan.
Applying for a loan against gold is a way better option than the personal loan as it offers faster processing, minimal documentation, zero pre-payment fees, and no EMI option. So now if you have a good amount of gold hoarded in your locker and you have immediate requirement of cash for your personal needs, it is good to make use of the gold instead of choosing personal loan option on higher interest rates.
