Pledging gold to get loans has become a common practice in India. People pledge their gold jewelry either with NBFCs or banks to get the funds instantly. Getting a loan against gold is very easy and hassle-free nowadays. You can apply it online by following simple steps. But, as with all loans, complete knowledge is necessary before entering into a financial agreement. So, here, we are unravelling the nitty-gritty associated with the gold loan so that you make an informed choice whenever you go scouting for this loan.
To be eligible for a gold loan, you need to fall within the below-mentioned criteria:
As compared to other financing options, the documents required to avail gold loans are minimal. In such loans, you would need a set of certain basic documents which are mentioned as below:
Identity Proof (Any one of the below):
Current Address Proof (Any one of the below):
Documents required for gold loan balance transfer:
Only jewelry form of gold is acceptable by the gold loan companies or financial institutions. Any other form of gold such as coins/bars/biscuits or utensils are not accepted. Also, remember, the higher the purity of gold, the higher will be the valuation and the loan amount. The purity of the gold should range between 18-22 karats or above. If the jewelry you are pledging is studded with gems or stones it will not be considered for valuation, only the gold's value will be considered.
As gold loans are backed by your gold assets, the rate of interest charged on such loans is comparatively lesser. The rate of interest for the different loan amount is given below:
If you opt for monthly repayment, the rate of interest charged in that case is given below:
|Loan Amount||Rate of Interest|
|20k to 25k||1.65% per month|
|25k to 5 Lacs||1.33% per month|
|5 Lacs Above||0.89% per month|
In the case of One-shot repayment, the rate of interest charged is 1.58%.
The tenure for gold loans is of 6 months and it will be renewed for another 6 months without any renewal charges. Since the tenure on gold loans is short, you must be sure of being able to repay the loan back on time. You may lose your pledged gold if you fail to repay it within the stipulated time.
Lenders decide the loan amount after checking the weight and purity of your gold. They do the LTV Calculation which is known as ‘Loan to Value Ratio’. Most of the lenders offer loans with a value of up to 75%-77% of the pledged gold’s market value. Moreover, RBI has also set the loan-to-value (LTV) ratio for gold loans at 75% and has directed all the financial institutions and gold loan NBFCs to lend at this LTV ratio. For example, if your Gold’s value is Rs 1 lakh, the loan amount that a lender can sanction you cannot be more than Rs. 75,000.
In gold loans, borrowers are offered multiple repayment options. There are four repayment methods to repay the loan amount. These are given as under:
The process of applying for gold is fast and simple. If you have all the necessary documents in place and you meet the lender's eligibility criteria, you can get your loan in a day only.
As both banks and NBFCs offer gold loans, you may find it difficult whether to choose a bank or an NBFC to avail of the loan. It all depends on your needs and requirements. If you are looking for features such as repayment flexibility or need cash against the gold that too within less time, then choosing NBFC would be a wise option. As NBFC can disburse gold loans only up to Rs 20,000 in the form of cash as per RBI guidelines.
As banks usually come up with a lengthy documentation process that makes loan disbursal a time-taking process. Secondly, Banks do not pay in cash for the loan amount sanctioned by them. All the sanctioned loan amount is transferred to the borrower's bank account either by the way of cheque or account transfer or NEFT/RTGS as desired by the borrower. The cash option works well when you need a small amount of money.