Beginner’s Guide to Gold Loan

India is one of the biggest consumers of gold, and Indians just love to buy gold. It has been estimated by WGC (World Gold Council) that around 22,000 tonnes of gold stay idle with Indians. It has spurred the banks, government and NBFCs to promote loans against gold options aggressively in India to get a hand on the gold. Note that today, not just banks like IDBI gold loan offers loan against gold but also digital lenders like Rupeek gold loan too offer gold loan offers. 

A gold loan is a secured credit option wherein your gold ornaments and jewellery are pledged to get funds for financial exigencies and needs. It is a cheaper loan form when compared with credit card loans and personal loans. Here’s all you must know about the gold loan and how you can avail of them at the best interest rates and required loan amount. 

Gold loan highlights

Loan amountThe minimum loan amount is Rs 10,000, and the maximum loan amount has no upper limit.
Interest rateBeginning from 7 per cent based on the lender
Repayment tenureAs high as 4 years
Processing chargesAs high as 3 per cent of the loan proceeds

How does a gold loan function?

Gold loan is granted in lieu of depositing gold coins, jewels, bars, etc., with banks. You can get as high as 80 per cent of gold articles that are pledged as loan proceeds. However, loan proceeds differ from one lender to another based on internal bank policies. A gold loan may be applied by anyone who is Indian with gold articles.

After taking the gold article to the bank, it may be assessed by the appraiser, who will decide the quality as well as the market price. Upon agreeing to the loan proceeds and other fees, you might proceed with documentation. Loan proceeds will be processed to your savings account after approval, and gold will get withheld by the lender. 

Repayment begins right after you receive the loan proceeds. The whole loan proceeds must be paid back with interest constituent as determined by the bank lender. The maximum repayment period on the gold loan is usually as high as 2 years. However, few lenders may provide you with a higher repayment tenure. 

Also Check: IDBI gold loan

Gold loan features 

Loan proceeds – You can get gold loan proceeds of a minimum of Rs 10,000. But this might differ for urban regions, wherein the minimum proceeds might begin from Rs 25,000. With maximum lenders, there’s zero maximum limit on gold loans, and you can provide as many articles as possible to avail of the loan. 

Repayment tenure – The minimum repayment tenure on a gold loan might begin from three to six months. The maximum repayment tenure that is provided in the gold loan may be as high as 4 years. However, maximum lenders permit just up to 2 years as the highest repayment tenure. 

Rate of interest – The rate of interest on a gold loan begins from nearly 7 per cent, and it can go as high as 26 per cent. However, the rates are still higher when you pledge the gold with private lenders or NBFCs. 

Security or collateral – Gold serves as a security or collateral. They will get retained by the bank until you close the gold loan thoroughly. If there are any continuous defaults, gold will be auctioned by the lender to recover all the losses. 

Prepayment – The borrower can select to pre-close the gold loan before the repayment tenure ends. Most NBFCs do not charge any kind of fee for the pre-closure. But the banks levy a specific per cent of the loan proceeds as a prepayment charge. It can range anywhere between 1 % and 3 %. Most of the lenders do not have any minimum lock-in, as gold loans come with shorter repayment tenures. 

Processing charges – Few of the banks or NBFCs waive processing charges to attract you. However, many lenders incur processing charges of a specific per cent of loan proceeds. It can range anywhere from 0.50 per cent to 3 per cent, and GST is also applicable along with processing charges. 

Late payment fees – Making late payments on a gold loan may cost you a lot. A lender might levy a specific charge called a late payment penalty. The amount of the charge differs from one lender to another. It usually may go up to 2 per cent p.a. over the applicable gold loan interest rate. 

Reasons why a gold loan is a better option than a personal loan

Consider a scenario where you require money for specific financial exigency, and you have a pre-approved personal loan at a rate of interest of 15 per cent p.a. At the same time, you may have adequate gold jewellery that stays idle in your home. Would you prefer to opt for a personal loan or a gold loan?

Here, in this case, you must go for a gold loan. Here, in this case, you may save a lot of money in the form of an interest constituent. 

ParticularsPersonal loanGold loan
Loan proceeds Rs 2 lakhRs 2 lakh
Rate of interest 14 per cent11.25 per cent
EMI proceeds Rs 9698Rs 9345
Overall loan proceeds with interest constituentRs 2.33 lakhRs 2.24 lakh
Saving constituentRs 8463

As the gold loan interest rates are lower than a personal loan, you may save substantial proceeds. Besides this, a gold loan is processed instantly, and the loan proceeds may be disbursed in a day. In the case of a personal loan, the documentation involved may be a little longer than a gold loan. Comparatively, the processing charges on the gold loan are considerably lower as compared to a personal loan, which results in additional savings. Personal loans come with a lock-in, and preclosure can be performed just after completing it. In the case of personal loan pre-closure, it may involve a fee that goes as high as 5 per cent of the outstanding principal component. On the contrary, gold loans availed from lenders may be prepaid at any time with zero need to provide any penalty.