Gold Loan

Gold Loan is a secured loan in which a borrower takes loan from the lender by pledging gold orrnaments. It is also known as a loan against gold. Most of the banks finance gold loans upto the maximum limit of 90% of the gold’s value. Borrowers can repay the loan through EMIs, bullet repayment option or overdraft. After the repayment, they get back their gold which was mortgaged earlier.

Gold loan is gradually becoming one of the most popular loans. Some of the main features and benefits of Gold loans are as following:

• Faster processing: Gold loans are secured loans, and loan approval is dependent on gold jewellery. Only KYC documents are required for loan approval, and hence, the disbursement of the loan is very quick within a few hours. The quick disbursal of the gold loan makes it a great option in case of emergency.
• 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. Banks and financial institutions provide gold loans to the priority sector like agriculture at reduce rates. This is called agricultural gold loan.
• 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 CIBIL 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.
• Easily Accessible: Gold loans are easily accessible. Anyone who is above 18 years old and has gold can opt for gold loans irrespective of CIBIL history and income.
• High Amount Eligibility: Gold prices are soaring, and the rising gold price further helps borrowers in getting better gold loan rate per gram.

The procedure for gold loan 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 or gold jewellery, 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.

Step 2: Apply for Loan

Once you have finalised the bank, you can apply for a gold loan online at the bank's website or at a marketplace like MyLoanCare or offline by visiting the branch. Once you apply gold loan 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 gold loan.

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 ₹ 49,000 & ₹ 48,000 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

• Bullet Repayment: This is one of the most popular repayment option offered by gold loan banks and NBFCs, where the entire principal amount is repaid at the end of the tenure. This repayment option is more prevalent for shorter tenure jewel loans of less than 6 months, as this allows the borrower to utilize all borrowed funds for the required purpose and hence, save them from the burden of repaying principal every year. Key Features of such schemes are:
  • Loan amount is repaid at the end of the tenure
  • Interest is calculated on a monthly basis, with an option to pay interest only EMIs every month, where you pay monthly interest in the form of EMIs
  • Some banks allow a lower LTV of 65% on such schemes compared to maximum LTV of 90% on other loan schemes.
• EMI Scheme: Though not very popular earlier, this scheme is increasingly being offered to jewel loan borrowers. Borrowers are required to pay monthly instalments or monthly EMIs to banks. This scheme is especially popular for longer tenure gold loan schemes with greater loan amounts. Key Features of such schemes are:
  • Lowest EMI for a ₹ 1 Lakh loan is ₹ 2,531 at the lowest gold loan interest rate of 9.90% and maximum tenure of 4 years.
  • Attractive LTVs of upto 90%
  • Banks call for 6 months PDCs for EMIs. Some banks exempt the borrowers from PDC requirement for larger ticket size loans
• Overdraft Scheme: This scheme is especially designed for businessmen and self employed who have fluctuating requirements for funds. The overdraft scheme allows the borrowers to withdraw any fund requirements or deposit any surplus in an overdraft requirements within a pre approved credit limit. Interest is charged only on the utilized portion at any given point of time. Key Feature of such schemes are:
  • Has an overdraft facility that allows deposit and withdrawal of funds during loan tenure
  • Interest expenses are minimized as it allows the borrower to deposit funds in the account when he has surplus funds
  • Available on all ticket sizes, though will be more suitable for relatively larger ticket size loans
  • Also comes with an option to renew the limit at the end of the tenure by paying processing fees

Gold loans are considered the easiest loans since they can be availed with minimum eligibility requirements. While the other loans restricted to occupation and credit score, gold loans can be availed by anyone. The general eligibility criteria to avail a gold loan is listed as follows:

• The applicant must be aged above 18 years of age.
• Gold loans can be taken by people of all occupations and even by unemployed people
• The pledged gold must meet the purry mark of at least 18 karats of gold
• The gold can be in the form of gold bars, coins, jewellery, or ornaments.

A gold loan involves various fees and charges that are imposed upon the borrower for the course of processing, disbursement and sanctioning of the gold loan. Some of these fees and charges involved in a gold loan are listed as follows:

• Processing fee: Lenders charge the processing fee on gold loan in lieu of maintaining the administrative charges on gold loan and for maintaining the loan account. The processing fee varies across all gold loan lenders and ranges upto 1.50% of loan amount.
• Foreclosure fee and prepayment charges: Foreclosure and prepayment charges are charged upon by the lender in case you opt to foreclose or prepay your loan before the maturity date. These charges may also vary across all lenders and ranges upto 1% of the outstanding amount. However, various lenders also charge NIL fee as the prepayment charge.
• Valuation charge: Valuation charge is the fee charged by the gold loan lender for evaluating the purity of the pledged gold loan in terms of how much purity the gold holds or whether the gold is pure or not.
• Stamp duty: The stamp duty charge is charged for the transference of ownership of tangible assets, whether gold or real estate property. The stamp duty charge differs across all states.
• Penal charges: Penal charges is not a compulsory charge, but it is charged only when you fail to pay the gold loan EMI as per the repayment schedule. Thus, the penal charge is charged on the failure of repayments on a monthly basis.

Gold loan calculator is an online tool that functions on a mathematical algorithm in the calculator of gold loan EMI and in the determination of the gold loan eligibility. The gold loan calculator adds convenience to the gold loan process by helping you in planning the loan in advance related to prepayment and repayment. The gold loan calculator functions in two ways, gold loan eligibility calculator and gold loan EMI calculator.

The gold loan eligibility calculator helps you to determine your gold loan eligibility by taking into consideration various inputs such as loan amount, loan value, loan tenure, gold purity, and gold quantity, among others. The gold loan eligibility calculator not only lets you inform of whether you can avail this loan or not, but also show you a list of eligible gold loan lenders as per your requirement.

A gold loan EMI calculator is an online tool that helps you get an estimate of your gold loan EMI based on the desired gold loan requirement, loan tenure and interest rate. The EMI calculator is a convenient, hassle-free and beneficial tool that is available on various online platforms. Gold loan EMI calculator works on the following formula:

E = P* r* (1+r)^n / ((1+r)^n – 1)

Here E is the EMI, P is the principal amount, r is the rate of interest and n is the loan tenure. This formula can also be used to calculate the EMI manually. However, using the online calculator is advisable in comparison to manual calculations, as the calculator gives accurate and reliable results.

✅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%. Gold loan per gram rates are different for different banks. Usually, gold loan companies like Muthoot and Manappuram offers higher gold rates per gram. Current per gram gold loan rate for HDFC is ₹ 3,600 and Yes Bank is ₹ 3,600.

✅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 one of the best 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 loan?

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 loan aginst 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.