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When a customer pledges gold (jewellery, ornaments or coins issued by the bank) to the bank to take out loan, then it is called as Gold Loan. In India, we as Indians have emotional values attached to gold as it is largely in the form of family jewellery and represents status and wealth.
Gold has always acted as a friend in need since it is highly liquid and portable as a Security and asset. When one is in dire need of money and has run out of every option available in the market, then he pledges gold to take Gold Loan. The customer gets a loan amount that would be a certain percentage of the value of the gold pledged to the bank or bank. Gold loan has always been considered as a good option because it is simple in process, quick approval & disbursal.
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CIBIL Score Importance in Gold Loan
RBI has made it mandatory to check CIBIL Score to process any loan. Personal Loans, being unsecured in nature are far more-risky than secured loans. In Gold Loans, gold Asset act as a security and shield to the bank even if the CIBIL Score is less desirable.
While in need of money, customer applies with so many banks for personal loan and generate unnecessary enquiries in his Credit report. That time no bank will be able to give you a personal because those enquiries will lower down your CIBIL Score. But at the same time if you apply for Gold Loan. Bank will not let you go disappointed or empty handed. As you are pledging your gold against the loan. Hence giving the bank a sense of security that you will repay the loan in time.
However, it doesn’t mean that you should not maintain your CIBIL Score as it plays a crucial role in getting other financial products. But on the other hand, Gold loan helps you in improving your CIBIL Score as well.
Benefits of Gold Loan
- Quick Process: In India, unlike other loans (like personal loans), availing Gold loan is the quickest process and as the banks will sanction your loan against the gold you have deposited with them. Sometimes it happens, that you walk out with the loan amount from the bank branch. The Gold loan be sanctioned within a few hours. However, the maximum and minimum loan amount is totally at the discretion of the bank.
- Minimal Documents: Since you are providing gold as a collateral to the bank to avail gold loan. The bank won’t require extensive documentation like it is required in personal loans and home loans. With many banks, you will only need a ID proof, address proof, passport size photographs and signature proof. The ID and residence proof documents include voter ID, driver’s license, passport or Aadhaar Card among others.
- Another advantage of Gold loan is that if you don’t have the salary certificate then you don’t need to provide one as your gold will be use as a collateral giving a sense of security to the bank. Even, if you are unemployed you are eligible for gold loan, as you have your gold to avail the gold loan.
- However, some lenders may ask for the salary certificate if your loan amount goes up beyond a certain amount.
- Quick Disbursal: Once your gold loan is valued and verification and purity of gold has been checked, it will be just a matter of few hours for the bank to disburse your loan. Unlike other loans available in the market, gold loan does not require multiple levels of approval to sanction the loan. Gold loan ca be approved at the counter only on the very same day and you can walk out with the loan amount in your account.
- Lower Interest rates: Gold loans interest rate are comparatively lower than the other loans as you have pledged your gold as collateral to the lender and it varies from lender to lender. In case of gold loan rate of interest depends on the loan amount you are borrowing as it is against the percentage of gold that you have pledged.
Usually the banks give 75% percentage of the value of the pledged gold. But now RBI has increased the permissible value on gold loans, upto 90% of the gold to mitigate the impact of Covid-19 on the households, allowing them to take higher loan amount against their gold. This relaxation will be available till March 31, 2021.
Lenders charge higher interest rates on gold loans with higher LTV ratio to make up for the higher risk involved. Hence, to avoid the burden of higher interest rate, go for lenders that offer higher LTV ratio at lower interest rate. We also suggest you to remember, that a sizeable number of lenders charge fixed rates on gold loans whereas the rest charge floating rates.
- Safest way to utilize the idle asset: Instead of storing your gold in lockers at home. You can utilize this asset in availing the loan. Gold has always been proved to be valuable asset that is safely stored most of the time. Even in case, you are taking gold loan against your gold loan. It will be safe with the lender as well and you don’t have to worry about the same.
- Lender’s Safeguards: Gold has always come with an emotional value attached to it and most of the customers worries that if they are taking loan against Gold then would it be a safer move. To make sure that your gold loan is safe with the lender, they keep your gold in fire and burglary proof safety vaults with electronic surveillance. Every lender has their own safeguards of keeping your gold safe.
- However, it is advised to do a thorough research about the lenders available in the market before applying with one. You can inquire about their security measures while applying that how they will be keeping your gold safe.
Tenure of a Gold Loan
The tenure of the gold loan depends on lender to lender as they have different policies. Gold loan is basically taken when you are in immediate need of money and can afford to pay it back in shorter period of time. Hence you are looking for a shorter-term obligation.
Fees on the Gold Loan
Generally, every lender has different policies and fees attached to the gold loan. The fees is usually a percentage of the value of the loan and depends on the lender at the same time. Some lenders charge processing fees and there is also a fee charged while undertaking the valuation of gold.
Other fees and charges include pre-closure charges if you close your loan amount before the due date. Late payment charges in the cases when you are not able to make the payments on time then an additional penal rate is charged over and above the existing rate. A renewal fees can be charged if the loan is renewed beyond the original period and other statutory government duties and charges that need to be paid.
How to Apply for Gold Loan
It’s very easy to apply for a gold loan. There are two ways of applying for gold loan.
- Online Process: You can apply online through NBFCs and banks through their online process. You just need to visit their website, and follow the process.
- Offline Process: But if you want to apply in a very conventional way you can just walk into the branch of the bank with your jewellery. But make sure that has gold loan facility available. Benefit of doing this way is you can get the process done in person.
But you need to make sure that the branch you are entering can provide you the gold loan, as not every branch has the gold loan facility.
Repayment of Gold Loan
Prepayment or Partial payment: Lenders have different policies for pre-payment or partial payment of loan. Many lenders charge some fees when you close the loan before the due date. Some can provide you a option of partial payment and take back the equivalent value of the pledged gold. You will only have to the interest amount on the balance principal loan amount. Some lenders will only release your gold on full repayment only
In case you are unable to make payment, then lenders have different default policies. You will be charged interest on the time overdue. This interest will be higher than the existing rate of the loan. Bank will send you a notice, stating that how much time is left in clearing their obligations. Before they will put your gold for auction to recover the payment.
Renewal of Gold Loan
If a customer wants to renew his loan amount, he can do the by simply visiting the branch of lender from where you have taken the loan. Every lender has a time capping that after paying certain number of EMIs only, you can apply for renewal. You can only renew the amount that you has taken earlier, but if you want to go for a higher amount then it will be considered as a new loan amount and the complete documentation process will be done.
Bank or NBFCs will provide you an authority letter mentioning your loan amount and extended tenure for the gold loan. It’s that easy.
You need to be very careful while approaching any lender for Gold Loan. Below are some important points you need to keep in mind while applying –
- Do market research about the lenders available in the market.
- Have sufficient knowledge of their security systems that will keep your gold safe.
- There may be lenders who can offer you a gold loan, but may not be financially sound to carry on. Hence, there is a possibility of them shutting down, taking your jewellery with them.
- We suggest you to apply with nationalized banks or reputed private banks and NBFCs. Who have robust security system in place to keep your gold loan safe. Some of them are specialized only in Gold Loan, you can also refer them.
You run a risk of losing your jewellery with no hope of recovery, if your lender ditches you. Gold has always emotional and social angle attached to it as it is associated with family jewellery. So, it is always best to your research thoroughly and stick to the banks or NBFCs who are reliable and well reputed.