WHAT IS GOLD LOAN?

Gold loan is a kind of secured loan wherein gold jewellery or gold coins are kept as security or collateral with the lender like a Bank. The applicant needs to deposit the gold against which he is seeking a loan with the lender. Once the loan amount has been fully paid including the interest, the lender returns the gold ornaments to the applicant deposited by them at the time of getting the loan.

Since gold loans are secured in nature, they feature a short processing time, low rate of interest and a short to medium tenure. The amount of loan disbursed will be on account of the value and purity of gold. The Banks or NBFCs check for the purity and value of gold before keeping them under their possession.

Unlike a personal loan or other loans, gold loans are great for anyone wanting instant liquidity. As these loans do not take your financial details, proof of income or credit bureau score into consideration, they are disbursed almost instantly.

Banks usually accepts all forms of gold jewellery like necklaces, rings, earrings, bangles etc as security. Gold coins up to certain weight are also considered for loan approval. Gold bars, however, are not accepted by banks as security for gold loan. Also, if the gold ornaments have gems encrusted on them, then also only the value of gold will be considered and the value of gems won’t be included in the same.

Many private and public sector banks and NBFCs offer gold loans to people. Some known banks offering the gold loan include HDFC Bank, Axis Bank, Allahabad Bank and State Bank of India. Some key NBFCs offering the gold loan are IIFL, Mannapuram Finance, Muthoot Financial and Bajaj Finserv among several others.

BENEFITS OF A GOLD LOAN

Gold loan offers the following benefits:

• They have a low rate of interest in comparison to other loans.
• The loan tenure varies from a few days to 5 years.
• The borrower can select the repayment option.
• Most lenders do not charge any prepayment penalty on gold loans.
• Quick loan disbursal in the account.
• Minimal documentation.
• PAN card is not required for small gold loans.

FEATURES OF GOLD LOAN

• Gold loan is a secured loan. The lenders do not consider the credit history of the applicant.
• Many lenders give the option of paying only the interest part. The principal amount can be paid at the end of the loan tenure as a lump sum amount.
• The loan is disbursed in a few minutes itself.
• For individuals in the agriculture sector, gold loan schemes are available at a low-interest rate of 8% or so.
• Banks only seek the personal ID and address proof of the applicant without the need for any extensive paperwork being involved.

GOLD LOAN INTEREST RATES

The gold loan interest rate depends on the loan tenure and the amount of loan sanctioned. Usually, the lenders charge about 3-5% over the base rate i.e. 10% thereby making the gold loan interest rate varying between 13% - 15 % annually.

DOCUMENTS REQUIRED FOR AVAILING GOLD LOAN

The Gold loan doesn’t require much documentation. Banks only seek the KYC details of the applicants which include the following:

• Passport sized photograph
• Identity proof document- Driving license, Aadhaar card, passport etc.
• Address proof document- the electricity bill, utility bills, telephone bills etc.

GOLD LOAN ELIGIBILITY CRITERIA

Gold loans do not come with any stringent eligibility criteria. Anyone who owns gold can apply for gold loan. The other basic eligibility criteria are that the applicant must be a minimum of 18 years of age. Gold loans are secured loans and do not require any financial documents or CIBIL score of the applicant.

IMPORTANT THINGS TO KEEP IN MIND BEFORE TAKING A GOLD LOAN

Gold is one very precious asset. To make the most of it via the gold loan, one must keep the following things in mind:

• Since the repayment tenure of these loans is short, the applicant must be sure of his repayment capacity to avoid defaults.
• Gold loan rates vary from lender to lender. Before zeroing in on the lender, do some research and compare for the best rates.
• Gold loan up to 80-90% of the gold value will be sanctioned.
• Gold loans may seem fancy and easy to obtain but it is very important to understand that you are keeping gold as security and in case of default in repayment, the lender has the authority to confiscate it. Thus it is imperative to choose a reputed lender with good credibility and track record.
• Ensure to repay the gold loan amount on time. Else it can hamper your credit score and in extreme cases of the inability to repay, the lender can seize the deposited gold.