Begginers guide to a gold loan

Author : thekavyasharma
Publish Date : 2020-11-24 04:42:35


India is the second-biggest consumer of gold in the world and lending money against gold is a traditional practice in the country which is being followed for years. The gold market is supposed to reach at least 34 percent to Rs 4.6 trillion by March 2022, this is the rough estimate given by KPMG. The Indian banking sector is aggressively promoting gold loans because if reports are to be believed, more than 18,000 tonnes of gold is lying idle at Indian homes.

A gold loan is a credit against gold. Under this loan, gold jewellery is taken as security by the lending bank/NBFC. The advance is given to the borrower against this gold as insurance. Also, the interest rate on the gold loan is lower than unsecured loans.

Who is eligible for a gold loan?

Any individual who is a salaried employee, self-employed professional, businessmen, trader or a farmer. An individual should be between 21-60 years to avail the gold loan.

Documents required to submit to avail gold loan

A gold loan involves a minimal documentation process, a borrower only needs to submit the following documents:-

Identity Proof:

  • PAN card
  • Aadhaar card

Current Address Proof:

  • Aadhaar Card
  • Postpaid Bill/Landline Bill/ Water Bill/ Electricity Bill
  • Address Updated in Bank statement/Bank Passbook
  • Driving License
  • Voter ID
  • Passport
  • Rent Agreement, it should be submitted with the latest electricity of the owner’s house
  • Gas Bond Paper with the latest receipt
  • Credit Card Statement

In case a borrower transfers a gold loan then he/she needs to submit the following documents:-

  • Pledge card of the loan- At a time when the borrower applies for a balance transfer a document is taken by the bank which has loan application number, loan amount, the quantity of loan and lock-in period.
  • One cancelled cheque of any account

What type of gold loan is accepted?

Only gold which is in a form of gold jewellery is accepted by the NBCFs and financial institutions. Bars, coins, biscuits are not accepted as collateral in a gold loan. It is also worth mentioning that higher the purity of the gold will have a higher valuation, which in a way means higher loan amount. Also, a gold should range between 18-22 Karats or above (though gold jewellery is made only if gold is less than 22 Karat. Further, studded jewellery is not considered for valuation, only gold is valued.

Salient Features of Gold Loan

  1. Faster processing

Gold loan is a secured loan which makes the processing of a loan faster. When an individual applies for a gold loan there are no strict eligibility criteria and minimal documentation process is required.

  1. Simpler repayment procedure

Gold loan is a popular choice among the people because of its repayment feature. While a person avails a gold loan they have an option to either repay the interest amount beforehand and the principal money at a later stage or even a borrower can pay when the loan tenure gets over.

  1. Lower interest rates

The interest rate offered by a gold loan by the financial institutions is lower when compared to personal loans. The interest rate is lower in gold loans as it is a secured loan. Usually, gold loans are offered at an interest rate starting from 13 percent, whereas personal loans range anywhere between 15-18 percent.

  1. Zero processing fees

Most of the banks have waived off the processing fees as the gold loans are approved after keeping a physical gold as collateral. However, few banks like HDFC charges 2.50% processing fees, minimum of Rs 1,000 and maximum of Rs 25,000.

  1. Credit history is not required

Most of the banks check CIBIL score while sanctioning the loans, however, CIBIL score is not required in the gold loan. A credit score is a score which reflects the creditworthiness of a borrower. If you avail a personal loan and your credit score is low then there are chances that your loan can be rejected.

  1. Higher Loan Amount

With a gold loan, you can get a higher loan amount. The amount is decided based on the Loan-to-value (LTV) ratio. Recently, Reserve Bank of India changed the LTV ratio, banks can now lend 90 percent of the gold ornaments value, up from the existing limit of 75 per cent.

Do’s and Dont’s before for a gold loan

Do’s

  • To get the best offer and best interest rate compare the multiple lenders and choose the one who provides the lowest interest rate.
  • Checking the credibility of a lender is very important. It is always the best idea to opt a reputed lender or NBCFs.
  • Before you apply for a gold loan keep in mind to check all the cost associated with your loan. Some banks also have hidden charges like processing fees, prepayment penalty and many more.

Don’ts

  • You should not only compare the EMI cost and loan amount but you should also compare other charges like processing fees, prepayment charges and many more.
  • Not calculating the EMI cost can cost you more money, always calculate the EMI thoroughly. You can calculate EMI using gold loan EMI calculator to check the same.
  • Do not apply for a gold loan more than required. If you apply for more gold loan which is more than eligibility can lead to rejection of the loan. Before availing the loan, check the eligibility criteria.



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