Last Updated on May 25, 2022 by Neera Bhardwaj
Gold has always been a favourite metal for many. According to reports by the World Gold Council, in the quarter ending on 30 September 2021, gold demand increased 47% on a yearly basis compared to the corresponding quarter in 2020. While gold demand in India was 123.9 tonnes pre-pandemic in the September 2019 quarter, it shrunk to 94.6 tonnes in September 2020. However, over the last year, the demand surged and was recorded at 139.1 tonnes.
There are many reasons why people prefer investing in gold, such as ornamental uses, gifting, traditional and religious offerings, asset creation, and also as an investment to hedge against inflation and market volatility.
But did you know that if you have gold, you can avail a loan against it? Do you know how? Let us find out.
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What is a gold loan?
A gold loan is a secured personal loan that is offered against the mortgage of gold. If you own gold ornaments, bullion or jewellery, you can mortgage the same with a lender and avail a loan against the aggregate value of the mortgaged gold. Essentially, your capital assets in the form of gold become the collateral for availing loans.
Salient features of gold loan
Here are a few salient features of this loan:
- The loan is multipurpose, i.e, you can use it for any type of financial need.
- You can apply for the loan online and avail funds at the earliest.
- The lender evaluates the value of the gold mortgaged. Thereafter, the loan amount is determined based on this valuation.
- The interest rates are lower since your loan is backed by gold which the lender can sell off to realise the outstanding loan amount in the case of a default.
- Many lenders also allow a free insurance cover on the gold held as a mortgage so that your assets are secured.
- The lender holds the gold in safe custody until the loan is repaid. Once the loan account is closed, the mortgaged gold is returned back to the borrower.
How to avail a loan against gold?
If you have gold assets and you want funds for personal or commercial use, you can mortgage such assets and avail of a loan against them. To do so, here’s how you can go about it:
Check your eligibility parameters
The first thing to do to avail of a gold loan is to check whether you meet the lender’s eligibility criteria. Different lenders have different eligibility parameters but the basic requirements remain the same. These include the following:
Age: You should be aged at least 18 yrs and above. Many lenders allow loans only if the borrowers are at least 23 yrs old.
Income: You should have a source of regular and steady monthly income. The minimum income limit varies across lenders.
Credit score: A good credit score is needed to avail of the gold loan. The score ranges from 700 and above.
Check the eligibility parameters of the lender from whom you seek to avail the gold loan. Only if you meet the specified criteria will the loan be sanctioned.
Keep your documents handy
A set of your documents would be needed to establish and verify your age, identity, and income. Lenders usually ask for the following documents to process your loan:
- Identity proof, like your voter’s ID card, PAN card, Aadhaar card, passport, etc.
- Age proof like PAN Card, Aadhaar card, birth certificate, passport, etc.
- Address proof like utility bills, rent agreement, property documents, Aadhaar card, etc.
- Last 3-6 months’ bank statement
- Proof of income like salary slip, Form 16, audited financial statements, IT returns, etc.
Keep these documents handy so that you can submit them with your loan application to get the loan quickly.
Compare lenders and choose one
There are dozens of lenders, both banks and non-banking financial companies (NBFCs), that offer gold loans. You should, thus, check the available lenders and compare their interest rates. Also, compare the loan amount that the lender is willing to sanction. Choose a lender with the lowest interest rates so that your loan is affordable. Moreover, look for a lender that offers the funds that you need.
Get your gold valued by the lender
After you have compared and shortlisted the best lender, you would have to get the gold valued to find out the maximum loan amount that you can avail of. So, specify the quantum of your gold assets and then get them valued. Remember, the valuation would depend on the purity of the gold that you pledge and its weight. In the case of gold jewellery, the weight of precious and semi-precious stones is not considered during evaluation. So, the better the purity and the higher the weight, the larger would be the allowed loan amount.
Complete the application process
You can apply for a gold loan online or offline. In either case, you would have to fill up an application form stating all your personal and financial details therein. Fill up the form, sign it, and then submit it to the lender along with all the supporting documents. The lender would process the form, verify the information and then sanction the loan after successful validation.
Pay the processing fee
You would also have to pay a processing fee when you apply for the loan. This fee is non-refundable and is paid for processing your loan application. The fee depends on your loan amount and should be paid in advance when submitting the loan application form.
After the aforementioned formalities are completed, and the lender verifies your application, the loan would be sanctioned. The funds would be transferred to the registered bank account, and you can use them for your financial obligations.
The loan is usually repaid through EMIs over the tenure you choose. You can choose a suitable tenure over which the EMIs are affordable and repay the loan.
Things to remember when availing a gold loan
While a gold loan is easily available, here are a few things that you should keep in mind when availing it:
- There are different modes of repaying the loan, EMIs being the most popular. So, check the repayment options offered by the lender and choose a suitable mode.
- If you miss a repayment, you would suffer additional interest costs, late payment charges, and your credit score would also be hampered.
- Many lenders allow prepayment facilities that help you pay off the loan sooner.
The bottom line
Gold, besides its value and hedging qualities, can help you avail loan against it. The same cannot be said about other metals. It can give you funds when you need them the most with lower interest rates than personal loans. Today, availing gold loans is just a matter of one click and a few formalities. Reach out to your financial planner before availing any loans.