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.

12 Interesting Facts About Gold

India’s infatuation with gold is not a secret. For centuries, the glittering metal has been an integral part of India’s history, culture, religions, and traditions. In spite of increase in gold rates, Indians have not stopped to buy or invest in this beautiful and valuable metal. India’s love for gold is so much that the recent survey report by the World Gold Council shows that in the first quarter of 2017, the gold purchases made from India were accounted for a little over one-fifth of world gold jewellery demand. Indians may have an undying relentless love for gold, however, there are many facts that the Indians and many people in the world do not know about it. They may know the current gold rate but there are various interesting facts on its production and consumption that will for sure leave them amazed. To know more, read on.

1.    It is the most malleable and ductile metal in the periodic table. Even at its highest purity of 99.99 percent, it can be readily cold shaped to prepare 10 mm thick wires or 0.2 mm thick foil. Since it is soft, it can be highly polished. It can also be beaten into a very thin translucent foil.

2.   When a ray of light is incident on the surface of the translucent gold foil, the foil acquires reddish/yellow tinge. The light that passes through it is somewhat blue in color.

3.   It is one of the least reactive elements and therefore resistant to most acids and rusting. However, this yellowish metal can dissolve in ‘Aqua Regia’ (a solution of nitric acid and hydrochloric acid) and the alkaline solution of cyanide (a solution used for mining and electroplating).

4.   To change the color and strength of the gold, it is often alloyed with other metals such as copper, which is used to change its color from gold to rose gold. Gold’s purity is measured in ‘Karat,’ which is denoted by the letter ‘K’. The word is derived from the Arabic word “qīrāṭ,” which means ‘the fruit of the carob tree.’ The word also means ‘weight of 4 grains.’ Even in the olden times, the word was a unit of mass but was used to measure gold. The 18K gold has 750 parts of pure gold per 1,000.

5.     The gold nuggets are hard to find. They are even rarer than a five carat of diamond. Till today, ‘Welcome Stranger’ is the largest gold nugget that has been ever discovered. The nugget is 10 by 25 inches in size and was discovered in Australia by discovered by John Deason and Richard Oates on 5th February 1869. It was found about two inches below the ground surface and at that time was reported to yield 2,248 ounces of pure gold.

6.   Since the starting of the civilization, about 175,000 tonnes of gold has been mined by the mankind.

7.     In Cabarrus, North Carolina, the first gold nugget discovered was of 17 pounds. Also in 1803, when more gold was discovered in North Carolina, the first gold rush in the United States began.

8.    The Amersham Corporation of Illinois use the tiny spheres of gold to tag particular type of proteins. It is a method to know their functions in the human body, which will further help in the treatment of a disease.

9.     China tops the chart of top ten producers of gold in the world. South Africa was the crowning glory of the list until China overtook this position in 2007. According to a report by the USGS, in the year 2015, China had mined 455 metric tons of gold. Other countries that follow on the list include Australia, Russia, United States, Canada, Peru, South Africa, Mexico, Indonesia, and Uzbekistan.

10.  As per a report by the USGS, the gold production worldwide has only increased over the years. In the report, the gold production in 1994 was about 2,300 tonnes per year and in the year 2014, it reached somewhere near to 2,860 tonnes.

11.  Worldwide, gold is most commonly used in the form of gold jewelry. Therefore, the world gold consumption is measured by the gold jewelry consumption. Among all the nations across the globe, India is the biggest gold consumer. According to the latest report by the World Gold Council, in the first quarter of 2017, the gold jewelry demand from India was 92.3 tonnes as compared to 22.9 tonnes in the U.S. another country that closely follows India in the race is China.

12.  The gold rates have only increased with the time. In 2005, gold was about 57 percent cheaper than platinum. Even though over the last decade, the gold rates have increased to nearly as high as the price of platinum, the metal has still remained more popular among Indians than platinum. Even when the current gold rate in India is high, there has been no significant decline in its demand.  

Which state in India has the highest consumption of gold?

In India gold traditionally signifies not just status, wealth and prosperity, but it is also considered to be an auspicious metal. Not just Indian households, but some of the temples have vast reserves of gold and if all this were to be put together and given to the government, then India could be the richest country in the world. The consumption of gold in India is increasing every year at an average of 18% per year. According to the cultural heritage of the country, gold is considered to be the best choice of precious metal when it comes to making jewelry and also investment. Due to rupee terms the price of gold is lower, and there are also the demands related to weddings and festivals which help in enhancing the demand for this precious metal. The jewelry consumption in the country is a huge 703 tonnes and it remains in the top position for gold consumption throughout the year for the second year.

South India and especially Tamil Nadu is the largest consumer of gold in the country and this is why the gold rate in Chennai becomes important. Even in the south of the country the demand and supply for jewelry is growing every year. The southern states of Tamil Nadu, Karnataka, Kerala and Andhra Pradesh hold around 40% of the country’s overall gold consumption. Here gold is mainly used for making jewelry although even South Indians are considering the importance of this precious metal as a means of investment. 

Many temples in the South of the country are made of gold and also get huge offerings of gold from devotees. The investment in gold in this part of the country has risen to Rs. 2,440 crore in the year 2016 which is really a jump of 150% over the year 2015. The cost of gold has also increased by 27% as compared to the year 2015. When you compare this to other regions then the western region consumes 25-30%, the northern region consumes 20-25% and the eastern region stands at 10-15% gold consumption in the country.

You can witness the high growth in gold consumption in Tamil Nadu and rest of the south Indian states by the proliferation of jewelry showrooms, which range from large outlets to small traditional jewelry shops. This increase is partly because the tradition of buying gold for jewelry purposes is also now becoming a means of investment in the state of Tamil Nadu. This is why people in this region nowadays keep an eye on the gold rate in Chennai, because it affects the rate of gold in the rest of the region. The VAT is also as low as 1-2% on gold which affects the price of gold in Tamil Nadu and it is comparatively lower than the rest of the country. This has also led to the increased demand for gold in this state. The same is true for the rest of the southern region as well.

Then again the gold jewelry stores in the south also charge reasonable making charges. This also fuels the high demand of gold especially in Tamil Nadu thereby increasing the gold rate in Chennai. Although new trends in designs of gold jewelry are slowly becoming popular especially among the younger generation, but traditional designs and styles are still given preference. From early November onwards there is a rise of demand for gold in the country and especially in the South because people consider it auspicious to buy gold, during the Diwali festival and especially on the day of Dhanteras. The impact of depreciation of the rupee has led to the increase in the gold rate of Chennai as well as other parts of India, but this has not deterred the people of India from buying their favorite precious metal.

What is the reason behind the recent slump in gold rate?

There is a weakening global trend as far as the demand for gold is concerned which is mainly causing the slide in prices of gold especially in the domestic market of India. However, because the rupee is weak it has managed to keep the local gold rate relatively high compared to the slump in the United States dollar-denominated gold prices. On a global level, the precious metal has already lost more than 9% of its value in this year and it is on a fast track to post another decline for the third year running. The cost of gold slid to $1,045.85 in January 2017 which is its lowest price since the month of February in 2010. This was the time when the dollar rose to its highest levels in about 12 years after Federal chair Janet Yellen hinted at a rise in the US rate.

Let us look at the reason why gold prices are falling in the US as well as globally.

Worry over predicted US Federal hike in rate

The central bank of the US is expected to raise its rates for the first time in almost a decade during its next December 15th to 16th policy meeting. This hike in rate should create a dent in demand for gold which is non-interest paying and this has led the gold rate to come down by 9% of its value in the year and the prices are expected to drop further this year.

US dollar on the rise

The United States dollar is consistently rising and the market considers that the US Federal Reserve will hike the interest rates for the first time in almost ten years. The higher rates will drag on the non-interest paying gold by enhancing the opportunity cost of holding it, while there will be a definite boost in the dollar value. A stronger dollar means that the green-back denominated gold will become more precious for populations that hold other currencies. Therefore the gold rate in India is expected to remain high despite gold prices decreasing in the US.

Falling oil prices

The price of oil has also decreased to a seven year low and there is also a downslide in the broader community markets. This has added to the pressure on the gold prices all over the world and especially in India. The downslide in prices of oil can trigger a fear of deflation which is a bearish factor for the price of gold, because it is often used as a hedge in face of an oil led deflation.

Low physical demand

There was recently a modest rebound in the prices of gold from multi year lows, and this caused the premium in India to fall in the physical markets. This is because this rebound motivated consumers to postpone their purchase of the yellow metal. According to media reports, the buying of gold in India in the main quarter of December was likely the lowest in almost eight years. This was due to the damage by poor investment demand and consistent droughts that caused the earnings of millions of farmers to be slashed. The weakness of the ruppee compared to the dollar has managed to keep local prices comparatively strong where on the other hand there is a slump in the US dollar denominated gold. This has further dented the demand because investment buying has halted because investors don’t see much chance of a quick recovery in the gold rate.

Low investment demand

Investors are avoiding buying gold for investment purposes. This can be seen by the fact that assets in the SPDR gold trust which is the topmost bullion exchange traded fund are witnessing their lowest level since the year 2008.

Although it is certain that gold rate will slide lower in the near future on the back of the above situation, a sudden change of events could also cause the opposite reaction. This is the reason that people who buy gold for investment are keeping a close watch on the market, especially the people who already have vast reserves of the metal.

What is the difference between 24k and 22k gold?

Gold is a global commodity. The love for gold has increased considerably making India the highest consumer of gold globally. People from all classes prefer buying gold, be it the poor or the rich. 

Gold is used for many purposes. Below are a few purposes:

• Investment

These days, people prefer to invest in gold by buying gold bars/coins and gold bonds which enable them to reap long term returns on investment.

Gifting on Occasions

Festivals like Diwali see people buying gold. It is a ritual in India to buy gold on the occasion of dhanteras (2 days before Diwali). On Occasions like marriage, the bride and groom are gifted gold jewellery or coins by their parents and relatives. 

Inheritance

Gold is passed on from one generation to another and is being preserved by families as a memory. This jewellery keeps on accumulating and due to its preservation, helps in increasing the wealth of a person.

• Donation

Donating in temples is a common practice in India. For example, the famous temple Tirupati balaji and the Shirdi Sai baba. 

India accounts for highest consumption of gold globally. In the year 2015, gold weighing 703 tonnes has been consumed in India. Since ages, Gold has been the most admired holding of people in India.

Gold acts as a status symbol for the rich. Marriages seem to be incomplete without gold. Many a times, we get involved in gold shopping for occasions like siblings or own wedding. But do you know what is the meaning of Karat and the difference between 24k/22k/18k/10k/6k gold.

Karat is a unit used for measuring the purity and quality of gold. It is denoted by the letter “k”. 

✅ Check Current Gold Rates in India

 What is 24k Gold?

Pure gold consists of 24 parts. Hence, 24K gold is the purest form of gold i.e. 100% gold. It means that there are no traces of other metals in gold. Pure gold is soft in nature and bright yellow in color. Due to its soft nature, one does not prefer to make jewellery as they are prone to easy wear and tear. Instead, one prefers to buy 24K gold coins/bars from banks or gold shops. It is used in electronics and making medical devices.

What is 22k Gold?

Among the 24 parts of gold, 22 part consists of gold and the other 2 parts are some other metal. Metals could be zinc or silver or nickel. 

The percentage of pure gold in a jewellery of 22k is 91.67%. Balance 8.33% consists of other metals(zinc, nickel, silver etc).  

22k is used for making jewellery like bangles, necklaces as the mixture of metals makes it tough and less prone to wear and tear. 

What is 18k Gold?

Similarly, 18K gold consists of 75% gold and the balance 25% consists of other metals. In 18k, 18 parts are of gold and the balance 6 parts consists of other metals. As the mix of other metal increases and gold decreases, the jewellery becomes more durable and tough to hold a stone.

Diamond jewellery is always made in 18k or 14k or 10k. This goes with the point that as the mix of metals like silver or zinc or nickel increases and the gold decreases, the ornament becomes strong and durable enough to hold on to the stone for a longer period of time.

Gold and Silver jewellery is hallmarked by BIS Hallmark. BIS hallmark is a system of hallmarking the ornament and confirming that the piece of gold conforms to the specified karats by the gold seller. For example, 22k is denoted by the numbers 916, 18k by 750, 14k by 585.

As the Karat goes down, the purity of gold reduces. Like 14k consists of 58.3% gold, 12k consists of 50% gold and 10k consists of 41.7% gold. Also, you can customize the karat for any piece of jewellery you desire to buy.