Gold Loan is a secured loan that can be taken by pledging/ mortgaging gold assets (jewelry, coins, bars, etc.) as collateral with a bank or non-banking financial company (NBFC) that deals in gold loans. The bank or the non-banking financial company will give a loan amount based on the market worth of the gold assets according to the pertaining gold prices. The gold assets are returned after the borrower makes full repayment of the loan and the interest amount to the lender.
Gold Loan Process
Gold ornaments can be pledged and the purity of the gold determines the value of the loan amount. The customer takes the gold to the lending bank or a non-banking financial company where they check the gold’s purity and accordingly determine the loan amount. According to RBI guidelines, the loan amount can be up to 75% of the estimated value of gold.
The lending organization also charges a processing fee as per the policy. It is always advisable to apply for a gold loan facility with a credible lending organization such as Canara Bank Gold Loan. These organizations keep the gold secured in a vault so there is no chance of any mishappening. To smoothly process a gold loan application, the borrower needs to have one identity proof (passport, driver’s license, Aadhaar card) and address proof (electricity bill, phone bill) with proper KYC (Know your customer). Anyone who is 18 years of age and above can pledge gold assets to apply for a gold loan. With proper documentation, a bank like Canara Bank can process the gold loan application within just 45 minutes.
Gold Loan Repayment Method
Lending organizations provide numerous easy and convenient options for the repayment of the loan:
Upfront Interest- Payment of full interest amount in the beginning and principal amount in the end.
Bullet Repayment- No option of EMI here. The interest and the principal amount are paid together at the end of the tenure.
Regular EMIs- Regular monthly installments.
Overdraft facility- Interest is to be paid only on the utilized amount.
The repayment tenure depends on the policies of the lending organization and is generally between 6 months and 2 years. Some organizations also provide the option of tenure extension by renewing the loan agreement. Before taking a gold loan, the borrower needs to understand the terms of repayment because, in case of default, the lender can auction the gold assets to recover the loan amount. The interest rates on gold loans are lower than other loans such as personal loans, loans against credit cards, etc. The interest rate varies from 11% to 17% depending on the policies of the lending organization. Gold Loans from trusted banks have interest rates according to market standards than non-banking financial companies (NBFCs). Since banks have better security systems, borrowers can be assured that the gold is safely stored.
Gold Loan Eligibility
The factors that affect the Gold Loan Eligibility of a borrower are:
Weight of the overall gold jewelry- the higher the overall weight, the higher would be the loan amount. The maximum loan amount can be up to 90% of the overall gold value, which is directly dependent on the weight of the gold. While the weight is calculated, only the yellow gold is taken into consideration leaving the gems, stones, diamonds, etc. aside.
Purity of the gold- The purity of the gold is determined by carats. The higher the purity of the pledged gold, the higher would be the loan amount. The eligible amount of the loan depends on the present market prices of gold and the market prices change almost every passing day. Some lenders do not give a gold loan if the purity of the gold is less than 18kt.
Conclusion
While taking gold loans from any organization, borrowers must ensure to check the credibility of the bank or the NBFC to be chosen, the present market price of gold, the competitive interest rates, repayment terms, and conditions, RBI guidelines, etc.
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