Things to know before you Apply for a Gold Loan

1. There is very little documentation involved in taking a gold loan
2. The interest rates on gold loans is much lower than the interest rates on personal loans and similar unsecured loans
3. You don’t have to worry about your credit history, employment history, age, etc., when applying for a gold loan
4. There is no need to submit any income proof or proof of credit history
5. There are flexible repayment options
6. There is usually no prepayment on gold loans although some lenders can charge up to 1% of the outstanding loan amount as the pre-payment penalty

2. What are the different repayment options on gold loan?

Gold loans offer you the flexibility of different repayment options such as:

1. Equated Monthly Instalments (EMI), where you have to make regular monthly payments
2. Bullet payments, where the interest component of the loan is deducted upfront from the loan amount. This has to be repaid along with the loan amount at the end of the tenure
3. Interest now, principal later, where the interest component is paid first as EMI during the loan tenure and the principal component of the loan is paid later at the end of the tenure. This is offered only by NBFCs currently.

3. Where to avail a gold loan from?

While you can avail gold loans from small-time jewelers or ‘'pawn shops’', which are commonplace in India, it is safest to avail a gold loan from a reputed bank or Non Banking Financial Company (NBFC) that is regulated by the Government of India. This ensures that your gold is in safe hands. There are NBFCs that specialize in gold loans and offer more attractive interest rates and other features that are advantageous to the borrower. It is best to compare the features and interest rates of different banks and NBFCs before deciding where to avail a gold loan from.

4. What type of gold can be pledged?

The higher the purity of the gold, the higher will be the valuation amount, which means the higher will be loan amount that you get. The minimum purity expected by lenders is 18 karat gold. Also, if you are pledging jewelry that has gems or precious stones set into it, their value will not be taken into consideration when deciding the loan amount. Only the value of the gold will be considered for the gold loan. You are most likely to get a gold loan on gold coins rather than gold bars. Coins should have a purity of greater than 99.99 and can go up to 50 grams.

5. How much loan will I get for my gold?

How much loan you can avail against your gold depends on the lender, although most offer up to 90% of the gold value as a loan. No lender will offer 100% of the gold value as a loan.

Important points to keep in mind

Here are some points to keep in mind for gold loans:

1. The repayment tenure can range from 1 year to 24 months and depends on the lender
2. You can get your gold insured so that in case of theft, or other such unforeseeable circumstances, you will still get a compensation. Gold insurance is offered by lenders as well.
3. Some lenders will charge a nominal processing fee which could be up to 1% of the gold value or loan amount.
4. There may also be a valuation charge which is waived by some lender who have an in-house valuator
5. Interest rate varies from lender to lender but can range from 12% to 16%
6. Anyone over the age of 18 can apply for a gold loan
7. Only Know Your Customer (KYC) documents are required

A gold loan is perhaps the fastest and easiest loans that anyone can take if they have the resources to avail it. Knowing the important points given above can help you to make a best decision to avail your gold loan while getting the maximum loan amount and ensuring that your gold is safe and secure as well.

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