Gold is one of the most valuable possessions among many families in the country. 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. The following sections discuss the various ways by which one can take loans against gold.
Steps Involved in Taking a Gold Loan
Consumers seeking to avail a loan against gold have to go through the following steps:
- Gold Loan Application
The first step to take a gold loan is to apply for it from the preferred lender. Loan applications can be done both online and offline. For the offline process, one has to visit the nearest branch of the lender and fill out the application form. To apply online, borrowers need to visit the official website of their lenders.
- Submission of Gold
Next, borrowers have to submit their gold jewellery, coins or bars as security. Notably, this has to be done by physically visiting the branch of the chosen lender.
Once submitted, the lending institution will evaluate the amount as well as the authenticity of the pledged gold. This is done by an in-house evaluation process. The prevailing market price will determine the value of gold pledged. Usually borrowers can get a maximum of 80% of the gold value as their loan amount.
- Submission of Documents
After the evaluation process ends, borrowers need to submit these documents:
- Identity proof
- Address proof
- Recent photographs
- Receipt (in case the lender asks)
As a gold loan is a secured loan, it comes with minimal documentation.
- Authentication and Disbursal
The lending institution will verify all the submitted documents, authenticate them and then validate the candidature of an applicant. As soon as the verification ends, lenders will credit the loan amount into the applicant’s account. The entire process will take just a few hours.
Which Gold Items Can Be Mortgaged to Take a Loan?
A gold loan usually comes with low-interest rates. Borrowers can avail of this loan from traditional lenders as well as NBFCs against the following gold investments:
- Gold Jewellery
Most households in the country own gold in the form of jewellery and ornaments. However, commercially bought gold jewellery is usually not pure gold as it contains other metals in the form of alloys. Most gold loan providers typically provide a loan against gold jewellery of 18 carats. However, some might also offer loans against 22 carats ornaments.
- Gold Coins
Individuals can also obtain a loan by mortgaging gold coins. Gold coins are usually bought as investments as their value tends to rise with time. Notably, the policy of granting loans against gold coins can vary from one lender to another. Some lending institutions sanction credits against 24 carats gold, while some can approve loans against gold coins of 18-carat purity.
- Digital Gold
While loans against digital gold are not yet quite popular, some lenders have already begun to roll out this new credit option. Consumers can avail of a line of credit against digital gold assigned in their names.
- Sovereign Gold Bonds (SGBs)
Sovereign gold bonds are basically government securities that are denominated in grams of gold. Borrowers holding SGBs can use these to take a gold loan from any traditional bank or NBFCs. The LTV (loan-to-value ratio) for loans against SGBs will be the same as that which is applicable for an ordinary gold loan.
Gold loans are one of the tools to tackle financial emergencies. However, one can risk losing the valuable asset in case of loan default or irregular payment. It is also essential to compare and assess various gold loan providers to find suitable loan terms and rates.
Keep in mind that the Reserve Bank of India has prohibited financial institutions and NBFCs from providing loans against gold ETFs and gold mutual funds. Gold mutual funds and ETFs are usually backed by primary gold or bullion. RBI has been particular against the practice of offering loans against gold bullion.