Basic Questions You Must Ask Before Availing Gold Loan

In India, gold holds immense significance as a reliable investment and emotional asset. While it is often kept for special occasions, it can also provide financial relief in times of need. Gold loans offer a solution for leveraging its value without losing it permanently or compromising your long-term savings. However, understanding the fundamentals of gold loans, including their meaning, interest rates, and valuations, is essential before considering this option. Here are a few key pointers to get started-

1. What is a gold loan and how does it work?
Gold loans are secured loans where the customer pledges their gold as collateral to a bank or NBFC. The end use of this amount is not restricted in any manner. To get a gold loan, your age must be above 18 years, with the upper age limit varying among lenders. After repaying the loan with interest, you receive your pledged gold jewellery back. All you have to do is apply for a gold loan online or offline, submit the documents and the lender will evaluate the gold and sanction your loan.

2. How much amount can I get against my gold?
According to RBI guidelines, the maximum amount for a gold loan is 75% of the collateral value. However, different lenders offer varying amounts as per their schemes. The loan amount is computed as per the per-gram rate, considering weight, purity, and current market rate of gold. For instance, if you have 10 grams of 22-karat gold valued at Rs. 30,000 per gram, the total value will be Rs.300,000, and the maximum loan you can obtain would be 75% of that, which is Rs. 225,000.

3. What type of gold can be pledged?
All gold assets are eligible for getting a gold loan. The higher the gold's purity, the higher the valuation; thus, the bigger the loan amount you will receive. Lenders expect a minimum purity of 18 karats for gold jewellery. Additionally, the value of any gems or precious stones placed into the gold jewellery you are pledging is not considered when determining the loan amount. Only the value of gold will count. However, you are more likely to get approved for a gold loan with gold jewellery.

4. What will be the interest rate and tenure?
The interest rate on gold loans is comparatively lower than on personal loans. But different banks, NBFCs, and other local lenders have varied rates of interest. For gold loans, it can range from 7 to 29%, depending on the type of lender. While the tenure is generally between 3-12 months, lenders can extend the term to 20 months.

5. Which documents are required for a gold loan?
For a gold loan, you will need-
a. Identity proof- either an Aadhar card, PAN Card, Passport, Driving License or Voter ID Card
b. Address proof- either Aadhar card, Passport, Ration card, Electricity bill, Driving license or Voter ID Card.
c. Passport sized photos

While lenders usually require an invoice to confirm gold ownership, lacking one doesn't exclude you from applying for a gold loan. Instead, an independent expert appointed by the lender will evaluate your gold asset and provide a valuation report. To proceed, you must accept the report, declare your ownership, and confirm that the gold is free from defects.

6. What are the ways to repay the loan?
There are three ways to repay the loan-
a. EMI, that is, fixed monthly installments
b. Bullet payment, where the amount disbursed is after deducting the interest component. It is repaid with the principal when the loan tenure ends.
c. Interest now, Principal later is an option to pay interest components in EMIs throughout the loan tenure. The principal is repaid directly in the end.

7. Does my credit score affect my eligibility for a gold loan?
Gold loan eligibility is independent of credit or CIBIL score since the loan is secured with the gold asset. However, failing to repay the loan will negatively affect your overall credit score and may lead to the lender auctioning your gold.

8. Is a gold loan transferable?
You can swap your gold loan account from one lender to another if the customer service is bad or if another bank offers a better interest rate. But not all lenders provide this choice. However, before switching, ensure you have already paid 6-12 EMIs or 1%-5% of the total loan amount.

9. What are the charges associated with a gold loan?
All gold loan providers charge processing, stamp duty, and cash handling costs which range from 0.8% to 2.5%. If you fail to make an installment, the lender will impose a penal interest of 1% to 7% per annum on top of the regular interest rate that is in effect.

Conclusion:

Leverage your gold worth during challenging times and consider gold loans online for short-term emergencies. Choose a reputable lender like IIFL Finance, offering transparent processes for hassle-free gold loans. Inquire about affordable interest rates or apply online at IIFL Finance. The entire process is conducted online, granting quick access to cash, and repayment can be made according to the predetermined cycle. Apply for a gold loan at IIFL Finance today.