Gold Loan in India

The Gold Loan is a secured loan in which a borrower takes loan from the lender against the yellow metal. It is also known as a loan against the gold. Most of the banks finance gold loans upto the maximum limit of 75% of the gold’s value and these funds are provided against the security of the borrower’s gold. Borrowers can repay the loan through EMIs, bullet repayment option or overdraft. After the repayment, they get back their gold which was pledged earlier.

Gold loan is gradually becoming one of the most popular loans; some of the main reasons to choose the gold loans are as follow:

• Gold loans are easily accessible. Anyone who is above 18 years old and has gold can opt for gold loans irrespective of credit history and income.
• Gold prices are soaring, and the rising gold price further helps borrowers in getting a higher loan.
• The quick disbursal of the gold loan makes it a great option in case of emergency.
• The gold loan helps the self-employed by providing the facility of bank overdraft by which they can meet their working capital requirement.
• Banks and financial institutions provide gold loans to the priority sector like agriculture and reduce rates.

Some features and benefits of Gold loans are as following:

• Faster processing: Gold loans are secured loans, and banks and financial institutions are least concerned about the income and credit history of the borrower. Further, this credit option involves less documentation which results in faster processing of the loan.
• Multipurpose loan: Gold loan is a multipurpose loan and can be utilized for various purposes like financing a wedding, education, travel, purchasing gadgets, renovating home and any other purpose provided it is legal.
• Low-interest rate: The interest on the gold loan is comparatively lower than other unsecured credit options like personal loan. The gold loan rates lie in the range of 9.90% to 29.00%
• Low processing and foreclosure charges: Some banks do not charge any processing and prepayment charges on gold loans and some charge very low fees and hence makes it an affordable option.
• No income proof and credit score: Banks and NBFCs usually do not consider and enquire about the income proof and credit score of an individual. So, if a person does not have a fixed income and good credit score, then also he or she can manage to get a gold loan.

The process of getting a loan against gold is as follow:

Step 1: Check Eligibility and Select Bank

Before you apply for a gold loan, you have to check the loan amount eligibility. Gold loan eligibility is calculated on the basis of weight of gold, purity of gold, LTV ratio and current market value of gold. Select the bank that offers the maximum loan amount at lowest interest rates, processing fees and foreclosure charges once you check your eligibility.

Step 2: Apply for Loan

Once you have finalised the bank, you can apply for a gold loan offline by visiting the branch or online at the bank's website or at a marketplace like MyLoanCare. Once you apply online, the bank's representative will call you to confirm the details and fix an appointment.

Step 3: Documents Verification

An individual needs to carry proof of residence and proof of identity to the branch along with the gold ornaments. Bank authorities verify the documents.

Step 4: Gold Purity Check

After the documents verification, you have to submit the gold to the bank. The designated authority of the banks checks the purity of the gold (18 to 22 carat) and weighs it based on the market value of the gold.

Step 5: Loan Disbursement

Once the financial institution is satisfied by the documents and the purity of the gold, then they will disburse the gold loan according to the LTV ratio and secures your gold as per the guidelines of RBI.

As per RBI guidelines, Banks & Non-Banking Financial institutions can provide a gold loan upto 90% of the value of gold. The value of gold is estimated based on the value of gold per gram, which is further evaluated on factors such as purity and gold rate. As per the latest gold prices, gold rate per 10 grams for 24 Karat Gold & 22 Karat Gold stands at ₹ 49,900 & ₹ 49,010 respectively.

Individuals are required to provide proof of residence and identity proof for applying for gold loans.

• Identity proof: Aadhaar card, PAN Card, Voter’s ID, Passport, Driving license, etc.
• Proof of Residence: Aadhaar Card, Electricity Bill, Ration’s Card, Passport, Driving License etc.
• Signature proof
• Photograph

Gold monetisation scheme was brought to function in the year 2015, by the Government of India. The scheme works similar to a term deposit that is availed for a fixed number of years. Similar to how you deposit your funds to earn interest, as per the gold monetisation scheme you can deposit your gold to earn interest in the form of appreciating value of the gold. The gold can be deposited in any form whether ornaments, bar or coins, for short, medium and long term tenures, ranging from 1 to 15 years.

✅How much gold loan can I get?

Loan amount on gold is dependent on the value of gold and Loan-to-value ratio, which is set by the banks. The higher the gold value and loan-to-value ratio, the higher the loan amount. For example, Mr. X wants to take a loan against the gold worth ₹ 2 Lakh. Bank A offers 90% of LTV while bank B offers 80% of LTV. So, X can get a loan of ₹ 1.80 Lakh from Bank A or ₹ 1.60 Lakh from Bank B, respectively. LTV ratio varies from bank to bank. Generally, it lies in the range of 70% to 85%.

✅How can I get a gold loan?

Individuals who are resident of India and are above 18 years old can apply for a gold loan. All that one needs to do is provide the gold metal of 18 carats and above in the form of security and submit KYC documents to the bank.

✅Is the gold loan a good option?

Yes, a gold loan is an excellent option as the loan amount under the gold loan is disbursed quickly, has low-interest rate, processing fees and foreclosure charges. Further, there is no income requirement and credit score condition that can deter the chances of gold loan approval.

✅Is Gold Loan Safe?

Gold loans are safe as when you repay the loan you will get back the deposited gold. Banks keep the gold safe as per the RBI regulations. However, if you fail to repay the loan, then you may lose the gold. So, if you are not sure about your capability to pay back the gold loan, then you must not opt for this credit option.

✅What is the disadvantage of gold?

Gold loan is dependent on the value of gold and LTV ratio. So, it restricts the amount of loan one wants to raise. Further, if you fail to repay the loan, you may lose your precious metal.

✅What is the benefit of gold?

As the gold loan disbursal rate is quite high so it can be used in the form of an emergency fund and another benefit of opting a gold loan is the interest charged on gold loans is low. Further, you can get the gold loan irrespective of the income and credit history.

✅What is the cheapest way to buy gold?

There are mainly two ways of buying gold, paper and physical. An individual can purchase it physically in the form of jewellery, coins, and gold bars and for paper gold, he can also use gold exchange-traded funds and sovereign gold bonds. Prices of these keep on changing, and one needs to follow the trends to look for the cheapest way to buy gold.

✅What will be the price of gold in 2020?

The price of gold keeps on changing according to the factors of demands and supply plus economic conditions plays a significant role in determining the price of the gold.