What is Gold Loan?
Gold Loan is a type of secured loan, i.e. the loan is given against collateral in the form of various forms of gold jewellery or gold coins. You've got to deposit your gold with the lender, that is. NBFC or bank and you get the gold ornaments or coins deposited back only after you have paid back the loan sum in full, including interest.
You may use a variety of Gold Loan schemes from banks and other financial institutions. The amount of the loan against the gold you earn depends on the value of the gold you give to the lender. The value and quality of the gold must be tested before the bank or the NBFC takes custody of the gold.
This loan is a decent choice if you're looking for immediate liquidity. Also, because the approval of this loan does not depend on your credit history or income, you do not need to worry about the negative effects on your credit score or about having proof of income for the approval of the loan.
Why to Choose a Gold Loan?
A few reasons for the popularity loan against gold are as follows:
- Gold Loans have a low interest rate relative to most other loan options.
- Gold Loans tenure ranges from a few days to 5 years or more depending upon the lender.
- The options for repaying the Gold Loan may be chosen according to the preference of the borrower.
- In most cases, the lender does not apply a pre-penalty for Gold Loans.
- Minimum paperwork required and the PAN Card is not needed for this loan.
- Quick disbursement, i.e. loan is given within a few minutes to a couple of hours.
Gold Loan Interest Rates
Many Gold Loan providers charge only a small amount, usually between 3% and 5% above the base rate when offering a Gold Loan. As a result, for a base rate of 10%, interest on a Gold Loan will range from 13 % to 15 % per year. Gold Loans have a period that ranges from a few days to five years. The interest rate of the loan often appears to vary depending on the length of the loan as well as the amount of the Gold Loan.
Eligibility Criteria for Gold Loan
There are no clear conditions for the eligibility of Gold Loans to follow in order to receive a Gold Loan. Everyone may apply for a Gold Loan, as long as the person requesting a loan owns the gold. The sanctioning Gold Loan shall be determined by the amount of the gold submitted by the borrower.
You will receive a Gold Loan if you meet the following criteria:
- The person should be above the age of 18 years.
- He should own gold
Documents Required for Gold Loan
Like other loans where the paperwork is an essential part of the process, the Gold Loan documents needed to be submitted are just simple KYCs like:
- Two passport size photographs.
- A copy of identity proof documents such as your passport, driving license, Aadhar Card, ration card etc.
- A copy of address proof documents such as your electricity bill, telephone bill, other utility bill etc.
What are the Benefits of Going for a Gold Loan?
Gold loans are similar to personal loans to meet urgent financial needs, be they international education, marriage expenses, medical emergencies or some other personal use.
Freedom of use : Since there is no control of the end usage, you have the freedom to use the loan for some form of cost.
Secured Loan Type: You are not required to send any protection or collateral to the lender other than the gold ornament pledged.
Higher Interest Rate: The interest rate for Gold Loans is higher than for personal loans, since gold serves since leverage.
Liquid your idle asset: An idle commodity, gold is rarely used to produce capital. And the Gold Loan is the ideal way to collect capital and use the fund when you need funds to fulfil your financial needs. It is also safer inside the walls of a bank or financial institution's locker than your house.
Gold loan: Important Things to Know
Loan institutions offer loans of up to 75% of the value of gold, after verifying the quality of the metal and testing the market prices of gold.
While gold jewellery is perfectly acceptable to any bank or NBFC as collateral, bars are not accepted and only specific types of gold coins are accepted as collateral by banks only.
If the ornaments produced are made of precious metals, they are valued only on the basis of the weight of gold in the ornaments.
Things to Keep in Mind before Taking the Gold Loan
In order to get full returns and make wise decisions about your precious gold assets, you must keep in mind the following points when you use the Gold Loan:
The length of Gold Loans is generally limited, from a time of 1 year to a maximum of 2 years. The borrower should therefore be confident of his ability to repay the loan within the specified period.
Gold Loan rates are lower than other unsecured loans. But the interest rate of the Gold Loan can vary from one lender to another lender. It is therefore best to compare the choices available.
The amount of the loan that will be levied on you is limited to 80-90 per cent of the value of Gold, as per the current market price of gold, which you have pledged for the loan.
Gold Loans benefit from minimal paperwork, quicker approval and easy disbursement. The lender retains your gold as collateral for the loan and, if you default on your payments, he has the right to confiscate it. However, it is very important to know the reputation of your lender as your gold remains with him for the duration of the loan. It is therefore best to select the reliable lenders with a established track record.
Gold Loan repayment must be made at a period when payment defaults that affect your credit score. However, if you do not repay the balance of the loan, the gold you have deposited will be seized by the bank.
Gold Loan : FAQs
What are the typical interest rates and processing fees?
The interest rate for Gold Loans varies from lender to lender and ranges from 9.24 % to 17 %. Many borrowers also charge a nominal processing fee of 1-3 % of the loan amount. It is also best to check and compare the interest rate, transaction costs, late payment charges and prepayment charges with the lender before continuing with the loan.
What type of gold jewellery or coins is accepted as collateral for a Gold Loan?
Currently, all types of gold jewellery, including rings, necklaces, bracelets, etc., are recognized as protection. Some banks accept special gold coins of up to a certain weight, but gold bars are not yet recognized as collateral. In the event that the gold ornaments are encrusted with precious stones, the expense of valuation does not include the value of the jewels, so the loan sum would be determined on the basis of the weight.
Who decided the value of the gold I intend to use as collateral?
Some NBFCs and banks have in-evaluators who test the quality and weight of the gold to determine its worth. Your loan amount depends on the calculation given by the in-evaluator and the price of gold on the appraisal date.
Is there an option for prepayment in case of a Gold Loan?
Generally banks require borrowers to prepay their Gold Loan before the term of office ends, and most of them do not charge any prepayment penalty. Others can impose a prepayment penalty that varies from lender to lender.
I do not have a decent credit score for a loan, can I still get a Gold Loan?
Yeah, you don't need a decent credit score to make use of a Gold Loan, since the loan is a secured one. But, in order to apply for a Gold Loan, you only need gold, and anyone with a poor credit score or default repayments are eligible for a Gold Loan. However, the Gold Loan is taken into account in your CIBIL report and hence you can pay daily EMIs to increase your CIBIL ranking.
Can I foreclose the loan? Are there any foreclosure charges?
Yeah, you can still foreclose the loan at any time. Most lenders do not levy foreclosure charges on Gold Loans, although a few lenders charge about 2-4% of the unpaid principal sum. You should also get in touch with the lender to learn how to foreclose the protocol they follow.
What are the tenures for which I can avail the Loan?
Gold Loans are short-term loans that have a variable period of at least 1 month to 5 years or more depending on the lender.
What should you look out for?
Since Gold Loans are protected against your gold, you should be careful to repay the loan and take the amount of the loan that you really need and can repay comfortably. Loan default can adversely affect your credit score and report, including cancelation of any potential loan application.
What happens if I am unable to clear my dues by the due date?
Action taken on customers whose default varies from lender to lender. Some borrowers charge interest for the time that has passed, which is typically higher than the amount the borrower pays for the loan. A further default on the payment of the loan would result in a notice sent to you reminding you of the period within which you will have to clear your obligations. Non-payment of the loan by the final date of notice can also lead lenders to sell the gold items to recover their outstanding amount of the loan.
Gold Loan Interest Rates Comparison
| Group Provider | Interest Rate (Annual) | Processing fee |
|---|---|---|
| HDFC Gold Loan | 9.6% onwards | Nil to 0.5% of loan sanctioned |
| Muthoot Gold Loan | 12% onwards | 0.25% to 1% of loan sanctioned |
| Manappuram Gold Loan | Maximum of 26% | Varies on a case by case basis |
| ICICI Bank Gold Loan | 10% to 16.5% | 1% of loan amount |
| SBI Gold Loan | 1 year MCLR + 2% | 0.5% of loan amount with a Min. Rs. 250 |
| IIFL Gold Loan | 9.24% onwards | Rs. 0 onwards depending on scheme availed |