Gold, the precious transition metal is generally used for commercial, industrial and investment purposes in India. Indians have a tradition to buy Gold as a form of jewellery, bar and coin, especially during cultural occasions. Slowly and gradually, the metal became a part of every human culture. With the growing popularity of yellow metal, a loan market is also developing across the country, where a person can borrow an amount of money against Gold.
Gold Loan is nowadays one of the best loan options available in the Indian market. As per the WGC (World Gold Council), from 1987 to 2016, the annual gold demand in India has increased by 804%, and in 2018, it reached 4,345.1t, which shows that the rate of gold is 4% higher than that of in 2017. Gold can be in any form like jewellery, coin, bar and unlike other loans (secured) such as a home, education and car, there is no restriction on the end-use of a gold loan. One can use gold loans for personal and business purposes.
The entire process of availing a Gold Loan is just like the other secured loans, but unlike others, it can be disbursed in a working day. Anyone who has an ample amount of gold articles can apply for a Gold Loan. It is not mandatory to have a high credit score to apply for a Gold Loan, and in comparison to others, it does not include stringent eligibility criteria.
If one wants to apply for a gold loan, they would require documents such as Aadhar Card/ Pan Card, Passport/Voter ID for identity proof. Resident proofs like rent agreement, electricity/telephone bill, Aadhar card are some other documents you would require for the loan. A passport size photograph and photo identity proof are other checklists that one needs to apply for a gold loan.
While applying for a Gold Loan against the gold articles, everyone wants to avail the best Gold Loan scheme. Many financial institutions give Gold Loans at a high rate of interest.
LTV (Loan to Value), is a measurement tool, defined by RBI and used by the lenders to measure the ratio of a loan to the value of an asset. Before verifying the loan application of a borrower, lenders assess and evaluate the quality, purity, and weight of the Gold and based on these, the amount of loan is decided.
Also, the loan amount is sanctioned based on the current rate of Gold, current LTV rate and the tenure of the loan. Before 2014, January, LTV ratio for Gold Loan in NBFCs was restricted to 60 per cent, which means if the gold article is worth INR 2 Lakhs, the loan amount sanctioned would not be more than INR 1.2 Lakhs. But from January 2014, as a prudential measure, it was decided by the Reserve Bank of India to increase the cap to 75 per cent. It means, in the place of 1.2 Lakhs of the loan amount one can get now INR 1.5 Lakhs against 2 Lakhs of Gold articles.
However, it is essential to note that the LTV restriction is only applicable to NBFCs. On the other hand, in the bank, a minimum amount of INR 10,000 and a maximum amount of INR 20 Lakhs can be obtained against Gold without any LTV restriction.
The repayment of gold loans is also easy, and one can repay the loan through various methods such as bullet repayment method, EMI method, or by using partial payment methods. Under the bullet repayment method, one needs to repay the principal amount and interest at the end of tenure in one go. The rate of interest for the same is calculated every month and added every month with the principal amount. If one wants to repay the gold loan using the EMI method, they can do so by paying the regular monthly installments every month. The principal amount, in this case, is paid at the end of tenure. The individuals can also repay the loan as per the convenience by partial payments method of repayment.
In general, Gold Loans are the short-term loans, and interest rates on these loans are lower than other personal loans. The rate also varies depending upon the total value of the Gold the borrower has pledged, and the LTV ratio applied by the organization. It is always recommended to choose a high LTV – low-interest-rate scheme to avoid the burden of the rate at the end. If one wants to compare the gold loan rates of different banks, they can use an online marketplace to get the best offers and attractive loans at the lowest rate of interest. Various online eligibility tools can come handy to get the credits for a higher value.