A gold loan can be a great financial tool to meet your immediate financial needs. While it may require you to part with your precious jewellery, it ensures that you get an upfront amount that can be used to finance other purposes.
This is how it works:
- You deposit your gold jewellery in the lender’s vault
- The lender gives you an advance or loan based on the market value of the jewellery
- You may use the money from the loan for any purpose and repay through monthly instalments
Things To Know While Taking Gold Loan
Point – 1
A gold loan is a type of loan given by banks and NBFCs against the security of your gold ornaments and jewellery. The value of the gold pledged as security can be used to receive a loan for your specific needs. The interest rate charged on the amount pledged will depend upon the customer’s creditworthiness and/or reputation, along with the prevailing interest rates of the bank and other such factors.
Point – 2
The Reserve Bank of India (RBI) has put in place several safeguards to protect the interests of gold loan borrowers, such as interest rates on loans indexed to the rate at which banks borrow from RBI, provision of cash credit accounts for repayment and maintenance of a minimum ten per cent cash reserve ratio. RBI has however noticed that a large number of borrowers are availing gold loans which do not adhere to the recommended LTV (or Loan-To-Value) ratio of 75:25 between the value of ornaments and jewellery pledged and the loan amount.
Point – 3
If you own gold jewellery, it can be useful to know that there are a variety of ways in which you can use that gold – with weight as collateral. In fact, this is a jewellery investment option that you can add to your portfolio easily; apply for a loan against any of your items, and once the loan amount is paid back, you will get your jewellery back. This option lets you use the gold without having to sell it completely, and utilise the money value kept in gold.
Point – 4
The standardization of gold valuation ensures quick appraisal and faster processing of loans. RBI allows individual lenders to decide on the weightage to be given to various methods of valuation, within the overall average of last thirty days as quoted by IBJA or historical spot digital gold price data publicly disseminated by a commodity exchange in a consistent manner as per their Board approved policy. The new facility is available with all nationalised banks.
Point – 5
A lender who comes for the collateral tends to ignore the past credit record or monetary defaults. If the borrower has a loan account, then that person will not find any difficulty in getting a gold loan. Yes, he/she can be eligible even if the person does not have earlier experience of borrowing. Gold loans in India are normally granted for 4 years or over with the repayment option of monthly instalments, but the people who regularly take loan against gold in the country pursue it under flexible repayment options, making it a lucrative business.
