Indians have an affinity for gold. India is among the largest importers of gold in the world. Indians use gold not only as ornaments but also as investment. They can use it anytime to fund urgent cash requirements. Whether there is a medical exigency, business expansion or any other financial liability that occurs, then gold can be used to get a loan against it. Here are some things you should keep in mind while applying for a gold loan. 

Key Things To Keep In Mind When Availing A Gold Loan

The Quantum Of Loan Is Determined By The Value Of Gold 

Several banks and NBFCs give gold loans, but the amount of loan varies from lender to lender. You will receive a higher gold loan amount when the purity of the gold is higher. Banks and NBFCs have their own gold evaluators who evaluate the gold to verify its purity. The sanctioned amount is decided based on this. A borrower can obtain 75% to 90% of the value of the gold as a loan amount, based on the lender and the Loan to Value (LTV) ratio.

So, if your gold is worth Rs. 1 Lakh, you can receive a maximum of 75,000 to 90,000 as the loan amount. You should check the maximum amount you can obtain as a gold loan before you apply, since banks have restrictions on the maximum amount that can be obtained as a gold loan. Also, it is a basic requirement that the gold you are pledging is 18 carats and above quality gold in any form, such as coins,  jewellery, etc. 

Verify The Lender’s Credibility

Since there are several banks and NBFCs that offer gold loans, choosing a suitable lender can be a challenging task. Before applying for a gold loan, you should ensure that the lender is trustworthy and credible. You will have to be extra careful since you are pledging your precious jewelry with them.

You should verify the customer reviews and safety measures taken by the lender for the security of the pledged gold. Many jewelers and unauthorized lenders also offer gold loans at slightly better offers. But, it is not advisable to get offers from unauthorized lenders. There have been many cases of fraud with such unauthorized lenders, where the borrowers have not received the pledged gold even after making the full repayment. 

Interest Rate

The rate of interest determines the monthly EMIs, so it is a crucial factor while applying for a gold loan. Since a gold loan is a secured loan, the rate of interest is comparatively lower than unsecured loans like personal loans. The rate of interest of a gold loan varies from lender to lender and it lies in the range of 7% per annum to 15% per annum.

The interest rate depends on the purity of the gold and other factors at the time of taking the gold loan.  Therefore, you have to check the rates of interest of various lenders. Banks give a lower rate of interest compared to NBFCs. Banks will charge a processing fee which is 1% to 2% of the loan amount, whereas NBFCs do not. So, before you take a loan, you should check the total cost of the loan by comparing a few lenders and then make an informed decision. 

Documents To Procure Gold Loans

You have to submit some important documents when you avail a gold loan. These documents may include Aadhaar card, PAN card, voter ID card, passport, driving license, photo ID card issued by the government, and defense ID card. An address proof will also be required.

For address proof, you will have to submit either your Aadhaar card, ration card, passport, bank account statement, voter ID card, utility bill if any like electricity bill, water bill, and letter from an authorized person. The requirement for documents also varies across banks.  

How Can You Avail Gold Loans?

Gold loans can be availed only against your gold jewelry, and the requirement may vary across banks. Some banks only accept jewelry while some accept gold coins and gold bars.  

How Can You Repay A Gold Loan?

You can decide to pay gold loan interest either quarterly or on a monthly basis and repay the principal amount at the end of the loan tenure. This will differ across banks. You may also opt to pay the entire interest at the beginning of the loan tenure and repay the principal sometime later. You can also avail the option of repaying the loan in regular EMIs that may include both interest and principal amount. This requirement will vary across banks. 

Deposit Of Gold

Post submission of the application, a gold loan agreement is signed between the customer and the bank. Next, the gold that has been evaluated is deposited in the bank. The loan is disbursed. The bank holds the gold until the repayment of the loan. Loans usually have a duration of 12 to 18 months. 

Gold Loans Offered By Some Reputed Banks

HDFC Gold Loan:

The various features of the gold loan offered by HDFC bank are:

  • Flexible repayment tenures

  • You are allowed to just pay only interest on the gold loan every month

  • The gold loan amount begins with Rs. 25000 and a minimum amount of Rs. 10,000 is available in the rural markets. 

  • The loan processing charges of the bank is 1% of the disbursal. 

  • The foreclosure charges are 1% plus applicable tax. 

  • The renewal processing fee is Rs. 300 and tax is applicable. 

  • The banks offer rates during January 2022 to March 2022. 

  • The minimum interest rate is 7.55% and the maximum interest rate is 15.75%

  • The average interest rate is 10.48%. 

  • The annual percentage rate offered to a customer during the tenure of January 2022 to March 2022 will be minimum 7.55% and maximum 15.76%. 

  • The average percentage rate is 10.48% 

SBI Gold Loan:

You can avail SBI gold loans just by pledging gold ornaments or gold coins sold by SBI. 

The various features of SBI gold loans are as follows: 

  • Paperwork is minimal with lower interest rates

  • SBI gives you a maximum loan amount of Rs. 50 Lakhs and a minimum loan amount of Rs. 20,000.

  • The processing fee is 0.25% of the loan amount along with applicable GST. The minimum processing fee is Rs. 250. 

  • You should be 18 years and above, and there is no need for income proof. 

  • Anybody with a stable source of income can obtain the loan.

  • The rate of interest for 1 year MCLR is 7.20%, 0.30% spread over 1 year MCLR, and the effective interest rate is 7.50%. 

Axis Bank Gold Loan:

The features of the Axis Bank gold loan are as follows:

  • Axis bank offers gold loans ranging from Rs 25,001 to Rs 25,00,000. 

  • You can avail for loan disbursal on the same day. 

  • Loan tenures are flexible and will range from 6 months to 36 months. 

  • Your age must be in the range of 18 to 75 years. 

  • You need to submit certain important documents, such as KYC documents, signed application form, and post disbursement documents. 

  • The interest rate for 1 year MCLR is 7.35%, spread over 1 year MCLR is 6.65%, and the effective interest rate is 14%.

Conclusion

A gold loan is one of the finest options for short term financial requirements. Various benefits, such as lower rate of interest, quick and easy process, flexible repayment method, gold offered as collateral, the option to pledge the same gold as security multiple times, soft credit checks, and flexible loan amounts make it one of the best choices. It is a good choice for businessmen as well as salaried individuals. But before you apply for a gold loan, research well and choose the one that offers a suitable interest rate. Read and understand the features, advantages, and terms and conditions to avoid discontent at a later date. Also, once you get the gold loan, make sure that you pay it without defaulting. 

FAQS of Planning To Avail A Loan Against Gold? Quick Tips To Apply For A Gold Loan

1:How can I obtain a loan against gold?

You can apply online for a gold loan or by visiting the bank’s branch. Only particular branches can sanction gold loans. Some necessary documents, such as photographs, PAN, identity proof, and address proof have to be submitted along with the application. Post submission of the application, a gold loan agreement is signed between the customer and the bank.

2:What are some of the best options for a loan against gold in 2022?

Some of the best choices for loan against gold in 2022 along with the interest rates are: 

HDFC Bank (9.50% to 17.55%), State Bank of India (7.50%), Axis Bank (12.50% to 17.50%), Manappuram Finance (12% to 29%), Muthoot Finance (12% to 27%), ICICI Bank (10% to 19.76%), Punjab National Bank (8.75% to 9.0%), Yes Bank (8.40% to 14.40%), Federal Bank (8.50% onwards), Punjab and Sind Bank (7.00% to 7.50%), and IIFL (9.24% to 24%). 

3:What are some of the mistakes to be avoided when applying for a gold loan?

Some of the mistakes are, not verifying the gold loan lender’s credibility,not researching thoroughly and comparing the options, not understanding the loan repayment terms,avoiding loan to value computation, and not knowing about the quality of gold that makes you eligible for the loan, and being unaware of the form of gold that qualifies you for the loan.