How is the value of ornaments calculated, which lenders are the best and all the important questions answered about taking a gold loan
In India, there has been a rise in demand for gold-backed loans as prices soared above Rs 50,000 per 10 gram. Also, the Reserve Bank of India (RBI) has allowed an increase in the loan-to-value (LTV) ratio for loans against pledged gold to 90 per cent from 75 per cent till March 31, 2021.
So, those looking to raise funds for meeting urgent financial needs to tide over the cash crunch caused by the COVID-19 pandemic are now borrowing higher sums through gold loans. Also, the interest rates charged by banks and NBFCs on gold loans are lower compared to unsecured personal loans which is an added advantage for borrowers.
But how does a gold loan work? Must you carry your gold ornaments and coins to the bank when you wish to take a gold loan?
How can I take a gold loan?
Yes, you need to carry your gold ornaments to the lender when you apply for a gold loan. To make things easier in these pandemic though, some of the lenders send a company executive to your place, for carrying out the due diligence. You can apply for a gold loan online from the lending bank’s website.
You will need Aadhaar or PAN as an identity proof, electricity bill or telephone bill as address proof and your photographs while applying for gold loan. You may need to submit an income proof if the lender insists on it.
The minimum and maximum loan amounts vary across banks. If you apply for a gold loan from Kotak Mahindra Bank, the minimum amount you can avail is Rs 20,000 and the maximum sum is Rs 25 lakh. Similarly, the tenures of gold loans vary from three months to 36 months across banks.
What are the charges for taking a gold loan?
Some banks charge processing fees of up to 1.5 per cent plus GST on the loan amount, which you need to pay before the loan amount is disbursed. Banks also charge valuation fees over and above processing charges. For instance, HDFC bank charges a valuation fee (a fee charged for the efforts the bank takes to value your gold) of Rs 250 for a loan of up to Rs 1.5 lakh and Rs 500 for loans over and above Rs 1.5 lakh.
Which type of lenders are the best for gold loans?
A public sector bank should be your first priority as interest rates are lowest compared to private banks and non-banking financial companies (NBFCs). For instance, public sector banks such as the State Bank of India and Canara Bank charge 7.50 per cent and 7.65 per cent interest, respectively, per annum on gold loan. Private banks charge interest rates in the range of 9.90-11.5 per cent a year and NBFCs such as Manappuram Finance, Muthoot finance charge 12 per cent interest annually.
How is the market value of gold ornaments calculated?
Lenders check the purity of the gold. Then, the market value of your gold ornaments is calculated according to the market rate of gold on the day of the loan application. You can take up to 90 per cent of the value of the pledged gold. If you pledge gold ornaments, only gold portions are used for calculating the value; other metals, stones and gems are excluded from the calculations by the lender.
In case you take a gold loan against 24 carat gold coins, they should have been issued by banks. If you have gold coins from a jewelry shop, they are not considered. The weight of the gold coin(s) cannot exceed 50 grams per customer as per RBI policy.
There’s a wedding in my family coming up. Can I take my pledged gold for a few days and then give it back to my bank?
Not all banks and NBFCs allow part release of gold ornaments for occasions. Some, such as IIFL allow you to use your gold temporarily during your loan period. Check with your lender for such facilities at the time of applying for the gold loan.
Can I foreclose or prepay my gold loan?
Yes, banks allow foreclosure. Banks charge a nominal closure fees of up to 2 per cent plus GST as foreclosure charges if account is closed within three months. There are no foreclosure charges after three months.
What is the consequence if I am unable to repay my gold loan?If you fail to repay the loan in a timely manner, the bank will send a follow-up reminder and levy a late payment fees as penalty. Most banks charge penalty fees of up to 2 per cent a year over and above the applicable rate of interest. Despite reminders, if you are unable to repay the loan, the pledged gold may be seized and auctioned by the bank to recover the outstanding balance. This will also have a negative impact on your credit history and score.