The Buyt Desk
Gold is considered to be a ‘friend of bad times’. Whenever a person buys gold he/she sees the yellow asset to be valuable in many ways. In India gold has been the easiest way to get a loan as well. Earlier moneylenders, goldsmiths or big shopkeepers used to give loans by pledging gold. But with the passage of time, the nature of gold loan has changed. Now many banks and non-banking financial companies (NBFCs) are giving loans against gold. A gold loan or loan against gold is a secured loan as the borrower keeps the gold as the collateral with the lender. If you are seeking a gold loan here is the whole process-
1. Selection of Bank/ Finance Company
First and foremost you need to finalise the bank or the finance company from where you will take a loan. While deciding upon the institution ensure that they are reputed and a known company or bank. After that you should look for their branches and locate a branch close to your home. Always choose the nearest branch of the bank or finance company as this will make your commute easy.
2. Purity Of Gold
You can get a loan against any form of gold , it could be jewellery, coins or gold bars but the lender will check the gold on the basis of weight and purity. The bank or the organisation giving you the loan will assess the purity of the gold. This is an important step because banks/institutions give loans only on gold of 18 carat and above purity. Loans on gold less than 18 carats are not allowed.Many institutions do not accept coins above 50 grams.Gold ranging from 18K to 24K can only be kept as security for getting a loan.
3. Loan to Valu Ratio (LTV)
Loan to value or LTV is the amount of loan the customer will have as against the value of gold. Based on the purity of the gold, the lender will decide the size of the loan. Usually banks and financial institutions give loans up to 75 percent of the value of gold.During pandemic, Reserve Bank of India had raised this loan to value(LTV) ratio to 90% as well.
4. Minimum Documentation
To apply for a gold loan, you will need an Aadhar card or PAN as an identity proof. Ration card, electricity or telephone bill can be given for address proof. You will have to submit your photographs and some financial institution may ask for income proof. Despite a low CIBIL/ credit score you can get a gold loan as the borrower has to keep gold as the collateral against the loan.
5. Interest Of Gold Loan
The interest on gold loan will vary somewhere between 8 to 18% per annum in public sector banks and private players can charge upto 24% per annum interest. Lenders also charge a 1-3% processing fee for the process. Generally, the lending institutions charge interest every month. At the end of the loan tenure, the principal amount is deposited in a lump sum. Some institutions also offer gold loans on EMI.
6. Tenure of Gold Loan
Gold loans are short term loans. The tenure can vary from one institution to another. The tenure of a gold loan could range from a 3 month to 2 year time period.
7. Loan Amount
The amount of Gold Loan approved for you is directly transferred to your account. Some finance companies give cash amounts up to less than two lakh rupees. The amount above that is directly transferred to the account through NEFT.
8. Gold Auction
Financial institutions impose a penalty for non-payment of interest on time. If interest is not paid for 14 months then they can auction your gold. Before taking such a drastic step, notice is issued to the borrower.
If you are considering taking a gold loan, we hope we have helped you in making an informed decision.
