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Gold Loan

Overview

Your jewellery could be your cash cow. If any emergency situation rises and you need money urgently, your jewellery can come handy.

Mortgaging Gold has a history attached to it. As we have seen in many Bollywood movies where Lala types use to mortgage jewellery of hapless villagers and in return use to lend money so that they could meet the emergency situation. Till few years ago, it was catered to by unorganized players mainly jewellers who use to mortgage jewellery at higher rate of interest and lower loan to value ratio. There were no such investment avenues like we have today but need was there. So that people could get good value proposition for mortgaging their jewellery. Historically we see that Gold has been perennial favourite of Indians be it any occasion gold was bought and gifted. Owing to the easy liquidity, easier availability, it was considered to be the safest investment haven. If we see the returns in Gold, they have always been able to beat inflation, thus providing hedge against price rise and fall.

This was the time when NBFCs (Non-Banking Financial Companies) stepped in, and grabbed the space within no time, looking at their performance, banks too became active in the area, thus giving ample choice to customers. Gold loans are provided on the basis of the value of the ornaments. The lenders charge the interest on gold loans on the basis of the ratio of the loan to the value of the gold ornaments which is popularly known as LTV Ratio. Higher the LTV, higher the rate of interest charged by the lender as he is left with lower margin. Now it was time for Sukhi Lalas to move into oblivion.

Lenders earlier used to finance up to 90% of the value of gold jewellery / ornaments. However going by the current RBI instructions, now the gold loan companies have been instructed not to lend beyond 60% of the value of the ornament. Depending on the LTV, the rate of interest ranges between 12% - 28% p.a. Gold loans typically are for the duration of one year and the duration can be further extended at the prevalent rate of that time. During the period you are supposed to pay the interest regularly.

If you are a gold loan aspirant, visit the branch office of the lender along with your gold jewellery. The lender will evaluate your jewellery and will provide the loan based on their valuation rather than the cost mentioned in your purchase bill.

Muthoot Finance and Manapurram Finance are two very active players in loan against gold jewellery. Banks like HDFC Bank, State Bank of Travancore, Central Bank of India and Indian Overseas Bank also provide these loans. Remember lower the amounts of loan you take per gram, lower will be your interest rate. Go for gold loan but not before comparing the features like LTV ratios, interest charged, financial stability of the lender etc. use gold loan EMI calculator to estimate your monthly installments Last but not the least, it is cheaper alternative to Gold Loan.

Gold Loan Eligibility

Applications for gold loan are accepted from:

  • Farmers, traders, salaried, self-employed professionals and businessmen.
  • Between, minimum 21 years to a maximum of 70 years of age - Self-employed professionals/non-professionals.

How do the banks calculate gold loan eligibility?

Eligibility for a gold loan is completely dependent on the assessment of weight and purity of the gold jewellery that is being pledged. Once you approach a bank or a gold loan company, it will conduct a valuation of your gold jewellery and then apply a LTV of up to 75% of the calculated value of the jewellery to be pledged to arrive at gold loan eligibility.

The value of Gold Jewellery and amount of gold loan eligibility is calculated based the following steps:

Step 1: The bank or finance company will test the level of gold purity and adjust the price of pledged gold in proportion of its purity.

Purity of gold is defined in carat, which means parts of gold. A 100 % pure gold is defined as 24 carat gold. So, 18 carat gold would mean an 18 carat of gold mixed with 6 carat of other metals.

  • The bank or gold company will adjust the value (price of gold) of jewellery for its purity. The price of 22 carat gold of last 30 days will be adjusted proportionately for the purity of gold pledged. For instance, the value/price of a 18 carat gold will be calculated by multiplying the average price of 22 carat gold for the last 30 days by multiplying it by 18/22.
  • Banks use 30 days average rates of 22 carat gold prices as directed by RBI. The rates used are as published daily by Bombay bullions association.

Step2: Weight of gold jewellery is netted off for weight of stones and gems.

The bank will measure the net weight of your gold jewellery by deducting the weight of the stones and gems that have been used in the gold jewellery.

Step 3: Bank will calculate the value of the jewellery as eligible for gold loan and apply a LTV to arrive at your gold loan amount eligibility.

  • The bank will calculate the value of the jewellery to be pledged by multiplying the net weight of your gold jewellery as calculated in Step 2 above with the adjusted price of gold as calculated in Step 1 above.
  • The bank then will then apply a LTV to the calculated value of jewellery to calculate your gold loan amount eligibility.
  • Banks are allowed to lend at a maximum LTV of 75%. However there are multiple schemes with LTVs between 60-75% on offer by leading gold loan providers.
  • Higher the LTV, higher the interest rate charged.

Gold Loan - Document Required

  • Two passport size photograph.
  • ID Proof such as Driving License / PAN Card / Form 60/61 / Passport Copy / Voter ID Card / Aadhaar Card / Ration Card. Any one document needs to be submitted.
  • Address Proof such as Driving License / Voter ID Card / Ration Card / Aadhaar Card / Passport Copy / registered lease agreement with not older than 3 months utility bills in the name of landlord (any one).
  • Proof of land holding in case of agriculture loan of more than Rs. 1 lakh

Q. What are the minimum and maximum loan amounts?

Ans. You can avail gold loan for any value from Rs. 10,000 to Rs. 15 Lakhs instantly, as per your need.


Q. When can be a Gold Loan cheaper than a Personal Loan?

Ans. The range of rate of interest on Gold Loan is as high as that of unsecured personal loans. However, if you take a Gold loan at a lower loan to value ratio of around 60%, the rates can be as lower at 12-14%. This can be possible by pledging more jewellery to reduce the LTV on the loan. Further, with zero processing fees and pre-payment penalty, the all-inclusive cost of Gold Loans will almost always work out to be lower than that of Unsecured Personal Loans.


Q. What is the loan tenure option?

Ans. You can opt for a tenure of 6 months or 12 months.


Q. What are the documents that I need to submit?

Ans. You need to submit the following documents:

  • Two passport size photographs
  • ID Proof such as Driving License or PAN Card or Form 60/61 or Passport Copy or Voter ID Card or Aadhaar Card or Ration Card. Any one document needs to be submitted.
  • Address Proof such as Driving License / Voter ID Card / Ration Card / Aadhaar Card / Passport Copy / registered lease agreement with not older than 3 months utility bills in the name of landlord (any one)
  • Proof of land holding in case of agriculture loan of more than 1 Lakh


Q. When should you opt for a Gold Loan?

  • You need the loan extremely urgently for a relatively short period of time.
  • If you want to avoid extensive paper work. Availing a Gold Loan requires only basic KYC documents.
  • If you lack a credit history or do not have a very high CIBIL score. Gold Loans do not undergo CIBIL checks.
  • If you possess gold jewellery that you are willing to hypothecate.
  • If you want to reduce you all-inclusive cost of borrowing. Gold Loans typically carry nil processing fees and pre-payment penalty, thus reducing the overall cost of loan.


Q. Do I need to update the bank in the event of change in address due to relocation or any other reason?

Ans. Yes. You will have to notify ICICI Bank within 7 working days of change in address in writing with the full details of all the change/s in the location/address of your residence or place of business.


Q. Can the facility be availed by pledging Gold Coins?

Ans. You can avail ICICI Bank Gold Loan against the security of 24 carat gold coins issued by banks only (operating in India) with 99.99% purity. The weight of the gold coin(s) cannot exceed 50 grams per customer as per RBI policy.


Q. When and in what circumstances should I not choose a Gold Loan?

  • If you are not comfortable with parting away with your gold jewellery and handover its custody to the bank. Your jewellery is typically kept safe by banks and specialised finance companies such as Muthoot or Manappuram, the only hitch is that you cannot use the jewellery, while it is with the bank.
  • If you are looking for loans of more than 18 months.
  • If you have alternative assets to pledge which may fetch you a lower rate of interest.


Q. How is the interest on my account calculated?

Ans. You will be charged simple interest, which is fixed and is calculated on reducing balance basis.


Q. Do I have to pay any additional fee?

Ans. You will have to pay a nominal processing fee, as applicable at the time of disbursement of loan.