How To Take Loan Against Gold

27 July 2023
5 min read
How To Take Loan Against Gold
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Since the beginning of history, gold has been of the most valuable possessions among many families in India. Apart from being used for commercial, industrial and investment purposes, this precious metal is a popular instrument to avail loans.

A gold loan is one of the ways to access funds during a financial emergency.

Wondering how to go about it? Read on to learn the ins and out of how to take a gold loan.

Steps to Apply for a Gold Loan 

Go through the following steps to understand how to take a loan against gold -

  • Gold Loan Application

  • To apply for a gold loan online, visit the official website of your preferred lender.

  • In case you wish to apply offline or the lender does not have the provision to apply online, visit the nearest branch of the lender and fill out the application form.
  • Submission of Gold 

  • Submit your gold asset as security.
     
  • This has to be done by physically visiting the branch of the chosen lender. 
  • Evaluation of Gold 

  • The lending institution will evaluate the amount and authenticity of the pledged gold. The prevailing market price will determine the value of the gold pledged.

  • Depending on the current market value and quality of gold, you can get 80-90% of the total gold value as your loan amount.
  • Documents Required to Apply for a Gold Loan 

  • This is a secured loan, so documentation is minimal.

  • These include any one of the following
  1. Aadhar card
  2. Voter ID card
  3. Passport
  4. Driving License
  5. NREGA job card
  6. Letter issued by National Population Registration
  7. A PAN card is only required if the loan amount exceeds Rs.5 lakhs.
  • Submission and Disbursal 

  • The institution will verify and authenticate the submitted documents and then validate the applicant’s candidature.

  • Once verified, the loan amount will be credited to your account. 

Things to Know Before Applying for a Gold Loan

Since now you know how to take gold loan, make sure you consider the following things-

  • Eligibility 

The individual taking this loan must be of Indian nationality. The minimum age to apply for a gold loan varies between 18 and 21 and goes up to a maximum of 70 or 75 years of age. 

A salaried or self-employed business owner or farmer can apply for a gold loan. Business owners, entrepreneurs, students, homemakers and pension holders can also apply for gold loans.

  • Gold Items that can be Mortgaged 

All gold instruments that are 18-22 karats can be used to obtain a gold loan. This includes gold jewellery, coins, digital gold, and SGBs. Gold coins of 24 karats can also be used to obtain these loans.

  • Interest Rate 

Owing to the fact that this is a secured loan, the interest rates are lower compared to those in unsecured loans. They usually start at around 7% p.a.

  • Loan Tenure 

The loan tenure starts at around 3 months and goes up to 24-48 months.

  • Repayment Schedule 

Depending on your lender, repayments can be made in the form of EMIs, paying the interest and principal at the end of the policy term, or interest in EMIs and interest at the end of the policy term.

  • Gold Requirement 

Usually, a minimum of 10-20 grams of gold is required to secure a loan.

You may also want to know the Best Ways to Invest in Gold

Pros of Taking Gold Loans 

  • Lower Interest Rates

Gold loans have lower interest rates since they are secured by gold assets, making them a more affordable borrowing option.

  • Quick and Easy Access to Funds

Gold loans have a fast approval process without extensive credit checks, allowing you to access funds quickly without selling your gold.

  • No Credit Check Required

Gold loans don't need a credit check, making them accessible even in cases of poor or no credit history.

  • Flexible Repayment Options

Lenders offer flexible repayment schedules, helping you manage your loan repayments according to your financial situation.

  • Tax Benefits

Gold loans may provide tax benefits based on the loan's purpose, such as tax deductions for home purchases or business expenses under Sections 24 (b) and 80C.

Cons of Taking Gold Loans 

  • Risk of Losing Gold Assets

Defaulting on the loan could lead to the lender selling the gold assets used as collateral, resulting in the loss of valuable assets.

  • Inaccessibility and Limited Loan Amount

During the loan period, the gold cannot be accessed. Also, gold loans are typically limited to a certain percentage of the gold's value, which might not meet more extensive financial needs.

  • Fluctuating Interest Rates and Hidden Charges

Market conditions can cause interest rates on gold loans to fluctuate, potentially leading to higher repayments. Some lenders may impose hidden fees, increasing the overall loan cost.

  • Short Tenures and Unsuitability for Long-term Needs

Gold loans have short repayment tenures, which can be challenging to manage. For this reason, they are also less ideal for long-term financing purposes.

Summing Up 

A gold loan can be a valuable financial tool for obtaining funds during emergencies. It offers lower interest rates and simplified documentation, making it an attractive choice. However, it is crucial to approach the process responsibly and ensure timely loan repayments to avoid the risk of losing the pledged gold.

Being well-informed and responsible with loan repayments can help you maximise this borrowing option.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

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