gold loan

To Indians, gold is an auspicious metal that is in extensive use. From making gold ornaments to moulding utensils it has much utility. Because of underlying sentiments towards gold, Indians tend to hoard gold. Also, it can be in the form of coins, jewellery or biscuit. Besides, the surge in its value makes it a good investment. Presently gold works as an investment instrument across the globe including in India. Moreover, it provides us with cash flow for medical emergencies and unwanted expenditures. 

With the emergence of the pandemic, gold is acting as a good backing. It is yielding fruitful results, especially for the banks and NBFCs. Furthermore, a hike of 45% in the gold loan outstanding in December 2021 is a high priority among the biggies of the share market. Additionally, with the evolution of credit instruments, the world sees immense potential in gold. For investing you need to understand how the gold market works? Furthermore, if you should go for a gold loan? Moreover, which are the mediums to take them from? Get a sneak peek of all your queries in the following discussion. 

How loan against gold work?

There are several conditions for which you can go for a loan against gold. The following are some of the points that you should keep in mind before opting for gold loans:

  • Acceptability of Gold: You cannot get a loan by providing the agency with any form of gold. The banks accept gold as collateral only when it is a piece of jewellery. Moreover, the purity of gold should range from 18k to 22k. 
  • LTV ratio: The loan to value (LTV) ratio in the case of gold is higher in comparison to most of the collaterals. Furthermore, you can get a loan for gold at an LTV ratio of up to 75%. That implies if you are to take a loan for gold valuing Rs 1 Lakh then you will get a loan of Rs 75 thousand. 
  • Evaluating and Sanctioning Gold Loans: The evaluation process is secretive in most banks. Also, it is the first step to keeping your gold as collateral. Thereafter, the bank will sanction a loan according to the standard of your gold. Furthermore, the interest rates and the loan value are also dependent on the value of gold. The tenure for repayment of the debt lies between 6 to 24 months. It varies from bank to bank. 
  • Duration of Loan Sanction: The duration difference for different banking institutions. Some take less than 24 hours. On the other hand, some take a few days. 

How well does the Gold Market Grow?

The gold market is flourishing day by day. The present valuation of the market is over Rs 2.9 lacs. Moreover, the market is expected to grow by 60% by the end of 2022. However, the numbers may look high but it is a low value according to the market. As the gross amount of household gold is around 25 thousand tonnes. This values approximately Rs 106 lakh crores. But the market size is just Rs 2.9 lacs. 

Why you should opt for a Gold Loan?

Gold acts out its magic when you have an urgent cash requirement. You can get a loan on gold from banks and several Non-Banking Finacial Companies (NBFC). Such loans are less strenuous as the banks can access the collateral in hand. The following are some of the pros of taking a loan for gold:

  • Ease of Precession: Lending gold is a safer option for financial agencies as they get physical securities against the loan. Furthermore, the NBFCs and banks do not charge a procession fee. However, it is only applicable if you provide them gold instantaneously. 
  • Low Rate of Interest: As the banks find gold loans a secured medium they provide a loan at cheaper interest rates. Additionally, the interest rate for gold loans ranges between 13 and 14%. 
  • Get an Option of ‘Pay Interest Only’: This is an option exclusive to the borrowers of gold loans. You only need to pay the interest value during the tenure. On the other hand, you have the option of paying the principal amount at the end of the tenure. 
  • Low Rate of Foreclosure Charges:  Some NBFCs and banks have a 1% foreclosure charge. On contrary, some do not have any foreclosure fees. 
  • No Requisition of Income Proof: Unlike most loan schemes you do not need to furnish income proof. Moreover, an ITR is also not necessary. 
  • Zero Impact of Credit Score: Money lending agencies scrutinize the capacity of borrowers to repay a loan. However, in the case of a loan on gold, they do not see any credit history. They have 100% assurance of getting back the money as they have physical collateral. 
  • Assured Safety of Your Gold: The lender is in charge of the safety of your gold. The banks take standard safety measures to assure the return of your gold. Moreover, they recruit a bank vault exclusively for the security of the gold you deposit.

Where should you take a Gold Loan from?

Both Banks and NBFCs proffer loans against gold. However, the eligibility criteria and interest rates differ in both cases. You can be in the dilemma of which one to choose for the best deals. Here is a comparison between the gold loans from banks and NBFCs:

  • NBFCs proffer gold loans without any processing fees. However, some banks charge a processing fee of up to 1%
  • You can get gold loans from banks as high as Rs 1 crore. On contrary, you can avail of only Rs 10lacs to 15 lacs from banking institutions. 
  • The tenure of repayment in the case of gold loans from NBFCs can be from 6months to 36 months. But in the case of banks, the maxim tenure is 1 year. 
  • NBFCs can provide a loan to value ratio of 60%. On the other hand, banks provide between 80 to 90% LTV. 
  • The NBFCs provide a gold loan at interest rates ranging between 20 to 27%. However, the banks proffer 14 to 17% rates of interest. 
  • Prepayment charges are nil in the case of NBFCs. But you might have to give away a small percentage of your loan value to banks. 

If you are thinking of borrowing a loan against gold think of the most important factor in your case. If you prefer a high LTV ratio then you should choose banks. However, if you need an amount over 15 lakhs then NBFCs should be your option. Also, the interest rates that the banks offer are much lower than those NBFCs offer. The deciding factors are many, choose the one that fits you the best. As gold has a value more than just money. It has emotional values attached to the borrower. Moreover, if you fail to repay the debt then the gold is liquified and sold in an auction. However, the failure of repayment in such cases is less because of the ease of access.

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