Table of Contents
- What is a Loan Against Gold?
- What Kind of Gold can be Accepted as Collateral?
- How to Secure a Loan Against Gold?
- What Factors Go into Determining the Loan Amount?
- How to Secure a Loan with Gold ETFs?
- Points to Remember
Banks and NBFCs offer loans against gold. During the recent pandemic, Indians pledged gold worth Rs 62926 crores for loans. It can become harder to sell stocks or mutual funds during market crashes or downturns without incurring a loss. Given these challenging conditions and the unwillingness of banks and non-banking financial firms (NBFCs) to make personal loans, having cash on hand is more critical than ever. In such a case, your current gold holdings can assist you in meeting emergency expenses, paying medical bills, or relaunching your firm.
What is a Loan Against Gold?
A loan against gold, often known as a "gold loan," is the simplest and quickest option to get a loan for your short-term needs. To get a gold loan, you need to temporarily commit your gold (bars, coins, or jewellery) to a lender in return for an amount of money equivalent to the value of your gold.
The gold loan is based on a percentage of the value of the gold you've pledged. Your gold's worth is determined by gold purity and weight. After the value is determined, a loan-to-value (LTV) of 90% is applied, and you are handed the money. The RBI has increased the LTV from 75% to 90%. That means lenders provide 90% of the gold value in the form of a loan. Many financial institutions are offering online gold loans.
What Kind of Gold can be Accepted as Collateral?
- 18 to 24 Karat Gold ornaments
- Gold coins, Gold Bars
- Digital Gold (But Digital gold must be exchanged for gold against which loan can be availed)
How to Secure a Loan Against Gold?
Let's have a look at how you can get a gold loan:
1.Documentation:One of the most excellent aspects of taking out a gold loan is how little documentation is necessary.
- Provide KYC documents.
- Proof of Identity (One of the following options): a driver's license, a PAN card, an Aadhaar card, a voter ID card, and a passport
- Provide proof of residency
Shriram Finance Gold Loan involves simple documentation with faster processing.
2. Gold Loan Eligibility:You can acquire a gold loan even if your CIBIL™ score is low. A loan against gold might help you enhance your credit score, provided you can make punctual monthly instalment payments. However, it’s crucial to know that payments made beyond the due date or non-payment may result in the auctioning of your collateral to cover the outstanding interest and principal.
3. Collateral:Lenders will evaluate the purity of a specific product by looking at the proportion of gold in it. Gold objects with a karat value of 18 to 24 carat (such as gold coins and bars) are recommended as collateral. Also, a loan against jewellery is permitted.
Don't offer low-quality gold for collateral. In such cases, the gold loan may be rejected. Once the checks are cleared, the gold is received by the bank or NBFC, which is responsible for carefully holding it until the loan is returned.
What Factors Go into Determining the Loan Amount?
Consider the following scenario:
You have 50 grams of 24-carat gold to provide as collateral. The present gold rate is Rs 5,000 per gram. The lender will lend you 90% of the gold's total worth.
Rs 5,000 multiplied by 50 grams equals Rs 2,50,000.
90% of Rs 2,50,000 equals Rs 2,25,000. This amount will be given to you as a loan in exchange for 50 grams of gold. If processing fees are included, this value may be lower.
Processing Time:
A gold loan is one of the most quickly processed and issued loans available. The documentation is often handled in a few hours - or at most a couple of days - and the loan is sanctioned. The processing charge is either 0% or 1%–3% of the loan amount.
Repayment:
Some lenders let you pay off the principal after the loan term, leaving you with only the interest to pay. Other lenders may offer you equated monthly instalments (EMIs), including interest rates and a portion of the principal amount throughout the repayment period.
How to Secure a Loan with Gold ETFs?
Gold loans can be acquired by redeeming Gold ETFs. This actual gold can then be pledged to a bank. It takes a couple of days for the redemption process. Short-term and long-term capital gains taxes and exit fees would be incurred if the funds were redeemed. In order to fulfil the procedures, KYC papers are necessary. The process for obtaining a loan is identical to that for getting actual gold. ETF firms provide a variety of borrowing rates. Also, once you've taken out a gold loan, the terms may alter.
Points to Remember
- In most cases, you can borrow up to 90% of the value of the gold you put up as security.
- As we previously stated, the Reserve Bank of India increased the LTV from 75% to 90%. To mitigate the impact of COVID-19, all loans against gold accepted for non-agricultural uses will have their LTV enhanced.
- Gold loan interest rates might range from 7.5% to more than 20%, depending on the lender and the current conditions.
- The length of an EMI might range from a few months to five years.
Taking out a loan against your gold does not imply that you're selling it. The gold is returned to you once you have paid back the loan. Taking out a gold loan is thus only a means to a goal.
