Gold loan or loan against gold is considered as a secured loan where the lender keeps Gold as security in exchange for funds. This means, a loan has been granted against the physical security of Gold.
In India, almost all banks and NBFCs are offering Gold loans to their customers. Depending on your gold valuation, these banks and NBFCs will offer you a loan.
In general, 75% of the GOLD jewellery’s market value will be given as a loan. This limit differs from bank to bank.
The amount of loan that can be sanctioned by the banks or NBFCs depends upon certain factors such as purity of gold, jewelry, whether the purpose of taking a loan is agricultural or non-agricultural, relationship with the lender, and tenure of the loan, etc.
In this article, we have covered followings;
- The complete process of Gold Lan
- Important points on Gold valuation before sanctioning of fund
- Eligibility
- Interest rates on Gold Loan
- Private Banks or PSU banks or NBFC – Which is better for Gold Loan?
- What happens if the gold loan is not paid
- Can you pre-pay the loan amount to banks/NBFCs
- Pros and Cons of Gold Loan
How to get Gold Loan – The complete process
To apply for a Gold loan, you need to physically visit the branch of the bank or NBFC. Once the application is submitted, a loan agreement is signed between the lender and you after the valuation of the gold done by an approved value appraiser.
Valuation appraisers are approved by the banks and NBFCs. They check the purity of the gold in front of the borrower and lender to find out the valuation.
The lender will not give you 100% of the total value of the gold as a loan. In general, the loan amount can be up to a maximum limit of 75% of the gold value. Out of this value, the lender will further deduct processing and valuation charges, following which your loan will be disbursed in cash.
Gold that has been valued is deposited with the bank for disbursal of loan. It will be kept in the bank till the loan is repaid by the borrower. Almost all lenders store pledged gold ornaments in a strong room that has electronic surveillance technology. Therefore, you need not bother about the safety of the Gold ornaments.
You are required to repay the loan in installments. Once you repay the whole loan, plus the interest amount, you will get your gold back.
Important points on the valuation of Gold
As discussed earlier, while applying for Gold Loan a registered Gold appraiser will value your gold based on the market value. They will be appointed by the lender out of their approved panel of Gold appraisers.
Please note, the value of the gold will be reduced by the weight of the stone and other materials used in your jewellery.
Gold will be valued and sealed in your presence by the Jewel Appraiser to ensure peace of mind. Lenders will not provide gold loans for any ornament below 18 carats and an ornament whose valuations can’t be done.
Gold bars and biscuits would not be considered for loans as they are not in the form of ornaments.
However, specially minted coins issued by banks would be accepted for the purpose of the loan as it is treated as gold ornaments for loan assessment purposes.
This means you can pledge any type of gold jewelry/gold ornaments with the lender including items such as necklaces, rings, bracelets, watches, ‘Polki’ sets, pendants, ‘Kardahs’, etc.
While valuing Gold you need to know followings;
- Rate per gram used by the bank.
- Reduction in gold value due to stone and other things. This means in case gold jewelry studded with precious stones, only the value of the gold component is considered.
- Margin or loan to value (LTV).
Who is eligible for a gold loan – Eligibility and Documents
In general, you must satisfy the following things to get eligible for a Gold Loan from a Bank or NBFC;
- Your age must be 18 years or above. Some banks have specified the minimum age limit as 21 years.
- Must have gold ornaments or articles
- Gold must be 18 carats or above
- Must be an Indian resident
- Documents
In general, the following documents are asked by the banks and NBFCs while processing your application;
- Application form with self-attested photograph
- Proof of residence (Ration card / Telephone bill / Electricity bill / Voter’s ID card)
- Proof of identity (Voter’s ID card / Passport / Employer’s Card / Aadhar Card)
- PAN card – In absence of a Permanent account number you can submit form 60/61.
Please note, the loan will be sanctioned against the gold pledged. There is no need for an external/third-party guarantor for the same.
To avail of business loans, home loans & personal loans, you are required to show income certificates, form-16, salary slips, bank statements & Income Tax Returns (ITR). In loan against Gold, you are not required to produce these documents.
Most importantly, there is no impact of your credit score on the gold loan as banks and financial institutions will not take into account your credit score while taking Gold loans.
But, in case of not being able to honor the loan repayment obligation, your credit score could be affected.
Gold Loan Interest Rates and charges
Interest on Gold loans vary between 7.5% to 16%.
Since agriculture falls under the priority sector, farmers who wish to avail gold loans to fund their agriculture activities or to meet their other farming-related activities can get a rebate on the interest rates. The rebate can range between 1% and 2% and hence, borrowers can get gold loans at an interest rate lower than the market rate for agriculture activities.
We have done a comparison of the 11 best banks to let you know which bank is the best for gold loans in India.
Here is the list of charges that bank in general charge for loan against Gold;
- Loan Processing Charges
- Valuation Fee
- Foreclosure/prepay charges
- Stamp Duty & other statutory charges
- Renewal Processing Fees
- Auction charge
- Penal Interest on the overdue amount
Before applying, you need to make sure that you have this information in hand.
Processing fee and valuation fee are the major expenses of Gold Loan. The processing fee can vary between 0.5% to 1%. The valuation fee can be between Rs. 250 to Rs. 750.
Private Banks or PSU banks or NBFC – Which is better?
Both banks and NBFCs offer loans to a value ratio of 75%.
When it comes to interest rate, the key factor in any loan, banks tend to offer lower interest rates in comparison to NBFCs. The interest rate is even lower in public sector banks in comparison to private banks.
However, loan disbursal can be faster in private banks or NBFCs in comparison to PSU banks. We have a few specialized NBFCs such as Manappuram Finance and Muthoot Finance offering different types of gold loans across cities.
Therefore, if you need a gold loan at a low-interest rate, then public sector banks like State Bank of India (SBI), Punjab National Bank (PNB), Bank Of Baroda (BOB), Bank Of India (BOI), Union Bank Of India (UBI), and Indian Bank should be your first priority. The best way is to do an interest rate comparison among banks to see which is more attractive for you.
On the other hand, if you want a speedy loan and are ready to pay higher interest rates, then private banks and NBFCs such as HDFC, ICICI, AXIS, Manappuram Finance, and Muthoot Finance can be considered.
As mentioned earlier, a quick comparison of these banks and NBFCs can give you a better idea.
Is there any restriction on the use of funds?
No, you can avail gold loan whenever you need funds for the education of children, business expansion, down payment for the purchase of property or automobile, medical emergency, holiday with family, agricultural needs, etc. There is no restriction on the use of funds.
However, if you obtain a gold loan for agricultural purposes, you may get an interest subsidy.
You can avail a loan for a minimum amount of Rs 10,000 up to Rs. 20,00,000 depending on the bank who sanctioned the gold loan.
What happens if the gold loan is not paid
In case you delay in repayment of loan EMIs, the bank will send you reminders. It can be via email and texts or someone from the bank may call you.
After a stipulated period of time, banks will start charging penal charges for non-payment of EMIs.
If gold loan EMIs are not paid as per RBI’s norms, they will be classified as non-performing assets. After which the bank may proceed to sell or auction the gold ornaments and repay the loan amount.
We suggest you apply for a gold loan only when you are confident of repaying the whole amount in time. Otherwise, you may lose your valuable asset as the bank or NBFC legally has the right to sell your gold to recover the unpaid loan amount in case of continuous default in repayment.
Can you pre-pay the loan amount to banks/NBFCs
Pre-payment can be done only when your lender allows you to do so. Therefore you need to check with your lender before applying. If they allow prepayment, ask for the procedure,interest and other charges they charge for it.
Certain NBFCs and Banks allow borrowers to prepay the loan amount at any time during the loan tenure, without any charges. However, in some cases we have seen banks and NBFCs charging a fee if a borrower avails the option to pre-pay.
Certain banks are allowing one-time payment options for Gold Loan, in which you need not make monthly payments of interest and principal amount. This feature allows you to pay the interest through the chosen tenure of repayment and pay the lump sum amount at the end of the tenure as a one time payment.
Pros and Cons of Gold Loan
Like any other loan, Gold Loan has its own pros and cons. Let’s first look into some of the advantages;
- Easy to process as banks don’t ask for tons of papers and formalities
- Flexible repayment structure offered by lenders
- Low-interest rates
- No requirement of Income proof and credit score
- No guarantor required
Here are few important disadvantages;
- In case you fail to repay the loan amount, banks/NBFCs may sell the gold as it’s easier for them to do so.
- The loan can be obtained for a short period of time. You can’t avail for 5/10/20 or 30 years. The gold loan can be obtained for tenures starting from 3 months up to 24/36 months.
- Low margin offered by banks. Banks/NBFCs only offer 75% of the gold value as the loan amount.
Disclaimer: In addition to the disclaimer below, we do not sell any loans on our own and do not charge any fee from any customers/viewers. We advise customers/viewers to choose from the best offers from banks and financial institutions. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
