Let's say you have gold jewellery in your home. It might be bangles you inherited from your grandmother or other coins you have collected over the years. When an unexpected situation arises, whether it is a family function, emergency medical expenses, or school fees, you can exchange your asset for funds with a loan against gold. With this option, you will be able to manage the unexpected situation, but still maintain your gold (i.e., the underlying asset).
What is a Loan Against Gold?
Consider a loan against gold like borrowing from a friend you trust. You have a friendship and trust but instead of words you use your gold as collateral for your loan, so you get needed help with financial issues with the collateral or security of your gold.
In this situation you get access to money quickly for your financial issues and you get to keep your gold safe. The bank or the lender takes your gold, keeps it secure, gives you money based on the value of that gold, and then when you are prepared and can give the money back your gold is returned to you.
Your gold determines how much you can borrow, called the credit value. If you have 20 grams of gold and the bank is paying ₹5000 per gram, the value in total is ₹1,00,000. Don't forget that you will not get the full value. Generally, you will receive approximately 75% to 85% of your gold's value. So, you will get a gold loan with a max value between ₹75,000 and ₹80,000. If you want to get funds fast but don't want to sell jewellery, this is a good option.
What Makes a Gold Loan Special?
A gold loan is different from other loans because the process is simple and fast. If you have ever waited days for a personal loan, you will be surprised—getting a loan against gold is usually done much quickly. There is no need for many documents, just your gold and basic KYC documents.
Here’s how it generally works:
- You take your gold to the lender.
- They weigh it and check purity.
- You agree to the money amount and sign some papers.
- The money is in your hands or your bank account.
It’s as simple as handing in your gold and walking out with your funds.
What are the Interest Rates for Gold Loan?
Whenever money is borrowed, there is interest to be paid. Loan against gold interest rate can change from one lender to another, but usually, it is lower than rates for unsecured loans like personal loans. This is because your gold acts like a safe deposit for the lender.
When Can You Use a Loan Against Gold?
A loan against gold can be your helping hand when you need money for many things—medical costs, school fees, weddings, or even starting a small business. The beauty of gold loan arrangements is that you don’t have to sell your family gold. You keep your memories safe and get the funds at the same time. With options like max value gold loan, you always know how much funding your gold can bring.
Steps to Get a Loan Against Gold
Here are the typical steps to avail a loan against gold:
- Pick a Lender: You can choose banks or gold loan companies that offer a gold and loan service.
- Bring Your Gold: Take your jewellery or coins in person; lenders check the gold’s purity and weight.
- Agree on the Value: They will calculate the amount of the gold loan based on the current rate and gold valuation formula to ensure clarity in each step.
- Receive Funds: Once you are satisfied with the amount and the loan against gold interest rate give them your gold and receive the funds.
- Choose Repayment: Repayment is flexible, and allows you to plan your financial choices freely. You only pay interest for the duration the gold loan is active and the principal amount can be repaid at the end of the tenure, if that is what you want. Different loan providers will have different repayment policies.
Getting a loan using your gold is a quick way to get funds when you are in need of urgent funding. Here are some easy tips to take right decisions and get maximum value from your loan:
- Be sure to ask lenders for their whole repayment schedule, what their EMI options are, and when you’re reading the loan agreement, be sure to look for the loan against gold interest rate before signing anything.
- Choose a lender that you trust and is transparent about everything involved in the loan process, from gold evaluation, gold value, and the maximum value gold loan.
- Take a copy of the original loan paperwork and gold deposit papers. Keep them safe until you get your gold back.
With proper planning, a loan against gold is a (safe, fast and useful) short-term solution to deal with sudden or important life expenses. Use schemes like the gold EMI scheme, and know your baseline loan against gold interest rate. That way, you will always have a tension free gold loan experience.
How It All Comes Together
Let’s say Meena, a school teacher, needs ₹50,000 urgently. She owns gold earrings given by her mother. She chooses a lender for a loan against gold. They check the jewellery and decide to give her a max value gold loan of ₹42,000 (after checking the value and using their percentage).
Meena chooses to take a gold loan with a flexible repayment plan. This plan allows her to pay only the interest amount in monthly instalments for the duration of the loan. When the loan tenure ends, she will have to pay back the loan amount of ₹42,000. Once the loan is closed, she will receive her gold earrings back. This will help her in managing her finances easily. Please note that the repayment option can vary between lenders.
Conclusion
Loan against gold is where your gold gives you the strength to get through a difficult situation without selling things that are important to you. The gold loan system in India is made for families and small dreams, and with options like the gold EMI scheme and fair loan against gold interest rate, it’s more helpful than ever.
Remember: Always use loan against gold carefully. Understand the max value gold loan you can get and choose repayment plans like a gold EMI scheme to reduce your financial stress.
Shriram Finance provides gold loans at competitive interest rates and flexible repayment options. For more information, please check Shriram Gold Loan.
Frequently Asked Questions:
How is gold value calculated for a loan?
Lenders usually calculate the amount of your gold loan by checking the purity, the weight and the current market price per gram of your gold. After this valuation, there is normally a Loan-to-Value (LTV) ratio applied to determine how much you can borrow. It is generally up to 85% of your gold's value.
The interest rates on gold loans usually start around 10% per annum. It can vary according to the lender policies. Many lenders offer flexible repayment schedules, such as interest only during the gold loan period, or monthly interest and principal repayments, or even bullet repayments (one repayment).
What should be the credit score for gold loan?
Gold loans are typically not strict on the credit score because the loan against gold is secured by your gold which is held as collateral so many people may enjoy a loan against gold even when their credit history is not perfect, unlike unsecured loans. However, lenders may still verify your credit score, just to know their risk.
What is gold valuation in gold loan?
Gold valuation in gold loan is to determine the actual value of gold pledged is reflected in the loan against gold. This is done by determining the purity of the gold to accurately weigh it. The valuation is important as it contributes to the amount of loan against gold you may be entitled.
What is the formula for gold valuation?
To get the value of your gold, you multiply the weight (grams) the purity factor (carats) and the market price per gram. For instance, 22 carat gold has a purity factor of 0.916.
So, the formula for your gold loan is:
Lenders calculate the gold loan amount by using the loan-to-value (LTV) ratio, which is a percentage of your gold quality valuation.
Gold Loan Amount = Gold valuation × LTV Ratio (usually up to 85% in compliance with RBI guidelines).
So you are getting loan against your gold that is a portion of your total gold value.
How to calculate gold loan amount?
To calculate the gold loan amount, lenders use the loan-to-value (LTV) ratio which is a percentage of your gold’s valuation.
The formula is:
Gold Loan Amount = Gold Valuation × LTV Ratio (usually up to 85% as per RBI guidelines).
This means you get loan against gold that is a part of your gold's total value, not the whole value.
How do I check my gold loan details?
You can consult with your lender from whom you secured the loan against your gold to check the details of your gold loan. Most lenders also have online portals or mobile apps where you can log in to check your gold loan amount, interest rate, EMI scheme information and repayment schedule. If this is an option, you are even more connected and you can call the customer service, or go to the branch for face-to-face help.