How to take a Loan against Gold?

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.

Merits and Demerits of Gold Loan

Gold loan is the loan that one can get against the gold that one owns. Gold can be in the form of ornaments as well as pure gold assets. There are many banks and non-banking financial companies (NBFCs) authorised by RBI to offer gold loan at attractive rates. All major banks and NFBCs offer loan against gold.

Indian families normally have gold jewellery assets and thus loan against the same is a reliable method to generate money in times of need. The lender keeps the gold as collateral/pledge by the customer against the sanctioned loan. Once the borrower has been able to pay the loan amount, the gold is returned, and only the interest is charged. Thus, it is a method to generate liquidity immediately by mortgaging one’s gold assets for the period of loan duration.

Procedure

Applying for gold loan is a relatively simple and short process. Any person above the age of 21 is eligible to apply for a gold loan. The borrower needs to visit an office/ branch of the financial institution with the gold and some simple documents as proofs. Before validating the documents, the lender first completes all checks pertaining to the gold asset or jewellery being deposited. It checks the authenticity, weight and then computes the valuation of the gold. loans can be sanctioned up to 80% of the calculated value. The weight of any stone studded in the ornament is usually deducted before the valuation.

Approval of loans against gold is usually done very quickly, almost immediately. There is usually no need to have a guarantor or introducer needed for gold loans. Also, the credit history of the borrower is not checked. The process is simple, safe, and quick.

Documents

The documents needs are simple. One needs to submit the following:

• Identity proof (ration card, driving license, Aadhar card, PAN card etc.)
• Address proof (Passport, voter id, phone bill etc.)
• Signature proof (driving license, passport etc.)
• 2 passport sized photographs

Types of loans and applicable interest

Gold loans can vary depending upon the duration of the loan. The range of high to low Loan to Value (LTV) options vary from lender to lender. 

• Generally, a high LTV offers the maximum loan for each gram of gold. The risk is higher and hence the interest rates are higher in this case. Also, the duration of this loan is usually shorter e.g. maximum of 3 months.
• On the other hand, a low LTV offers lower interests and longer duration to repay, but the lower risk also means that the loan amount per gram of gold is lesser.

Charges 

There are very little processing charges involved in a gold loan as it is a secure loan against submitted security. Also, the repayment is quite flexible as the borrower is free to return the money in parts during the loan tenure, or the entire amount before or at the end of the term. There are no prepayment penalties levied.

In case the loan is not repaid till the tenure of the loan, a penal rate of interest is charged from the due date. But if the borrower fails to comply, the lender might auction the gold in order to recover its money. However, this is done as a last measure, when the intention of repayment seems near impossible.

Impact of gold price fluctuation

At the time of applying for a gold loan, gold rates play a key role in the sense that they help lenders ascertain how much amount to lend. Based on the prevailing gold rate, your loan amount can vary significantly. For instance, loan amount for gold pledged at a rate of Rs 28,800 will be lower than that pledged at a rate of Rs 33,300.

Merits

• Gold loan is a quick way to generate cash in case of emergency as the disbursal time is less than a day.
• You can get the loan even if you have a low credit score. 
• The paperwork is relatively simple in case of gold loan as compared to other unsecured loans. Only a few simple documents are required to prove your identity and address proof.
• The borrower has the flexibility to pay the loan back as per convenience during the entire tenure of the loan. Despite there being a fixed EMI, you can pay more if you have extra cash.
• You can close your loan early without worrying about early repayment charges. 
• Rural variants such as agricultural loans against the gold have an even lower interest rate, as promoted by RBI, however proof of agricultural documents will be additionally required in this case.

Demerits

• The loan amount depends upon the valuation of the gold, which can vary from lender to lender.
• In case of forfeit and auction due to non-repayment, the borrower tends to lose all value of any precious stones studded in the ornament, as their weight had been deducted from the valuation originally. 

Why Gold Loan Is Better Than Personal Loan?

When faced with a financial crisis or a large expense, a loan might just be your best bet to get out of a financial hole. In this context, a personal loan or gold loan are often considered to be the best options. Both options are equally capable of meeting any of your expenses. The difference between the two is that in the case of personal loan you cannot give any type of collateral to pay off the debt sooner whereas the gold loan is backed up by your gold in the form of ornaments or gold coins (bullion is not currently acceptable by Indian banks and NBFCs). Listed below are some other key aspects that justify why gold loan is better than personal loan:

1. Zero processing fees: As personal loans are given to you without any collateral, you need to submit your income proof documents along with 0.5 percent to 1 percent of the loan amount as part of the processing fee. The benefit of the gold loan here is you do not have to pay any or at most a nominal processing fee and only minimal documentation is required. But banks offering gold loan may need for some document proofs such as you ID and address proof. And you need to submit your gold with the bank to get the Gold loan application processed within a few hours at the most. 
   
   
2. Lower interest rates: If you keenly observe the gold loan interest rate in the market, you will find them floating around 12 to 15 percent per annum mark as they are secured loans. Whereas personal loan interest rates though they start at 11.49% you would be quite hard-pressed to get a offer cheaper than the18 percent to 24 percent range as they are unsecured. The substantial difference in the two loan types makes gold loan the preferred choice among a large proportion of borrowers. 
   
   
3. Easy payment options: Generally in case of personal loan, you need to repay your loan through EMIs spanning over a fixed period of time.  And if you pre-pay any amount, a bank will charge you a prepayment fee that would be around 2 percent of the current outstanding principal amount. However, this is not the case with the gold loan. You can make payments in advance and close your gold loan account anytime you wish to without incurring extra charges.
   
   
4. No EMI Payment: This is the most important aspect of gold loan which a bank will never offer you on a personal loan. As part of this facility, there will be no EMI option given to you which combines the interest amount plus primary compensation. This is because the lender already has your gold which is more expensive than the loan amount, so you only have to keep paying the interest amount and the lender will be more than happy to keep the loan account active for years. The reason behind this clause is to give you flexibility in hard times when you cannot pay the bank loan due to a medical emergency, loss of job, etc.
   
   
5. The More the Value of Your Gold, the bigger the Loan Amount Will Be: Unlike personal loan where your loan amount depends on your salary, the gold loan amount will vary as per the amount of your gold. Let’s suppose you are earning Rs. 50,000/- per month then you will easily get a personal loan of about Rs 10 lakh for a period of 5 to 7 years.   But in the case of a gold loan, you can normally expect the loan amount of up to 70 percent of the current market rate of your gold. And this amount can go up to 90 percent if you can pay the higher rate of interest. This is based on individual company schemes.

To summarize, a gold loan being a secured loan features a lower interest rate and also offers an additional flexibility to pay the amount as per your convenience. To know more about gold loans option, you can visit www.paisabazar.com.

Gold Loan - Utilize in Times of Need or Hoard?

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.