What is a Gold Loan?
A Gold Loan is a secured form of loan in which the borrower has to pledge gold ornaments or gold coins as collateral with the lender. However, the loan against gold depends on the value of the gold offered for a mortgage. The loan obtained should be repaid in instalments along with the fixed rate of interest charged by the lender. Usually, a Gold Loan is offered for short to medium tenure. A Gold loan is one of the good options for instant liquidity that could be used for several personal and professional needs including wedding expenses, educational expense, business expansion, and others.
Unlike other secured loans, Gold Loans are not offered on the basis of the credit history or repayment track on the past loans and credit card bill dues. A Gold Loan is offered based on the value of gold pledged as collateral. However, the credit score will still be checked by the lender.
Key Facts about Gold Loans
To know more about Gold Loans refer to the key facts explained below:
The borrower can borrow a minimum of 1,000 as a Gold Loan. However, the amount of loan entirely depends on the value of the gold pledged as collateral with the lender.
Shorter Loan Tenure:
A Gold Loan ranges from 6 months to 5 years.
Fixed Rate of Interest:
The lending institution charges a fixed rate of interest on Gold Loans. The prevailing Gold Loan rate of interest is 8.96%.
Quick Loan Disbursement:
The turnaround period for a Gold Loan is short as compared to any other loan type. Usually, a Gold Loan is disbursed within an hour of the submission of all the required documents and the said gold.
Collateral or security:
To obtain a Gold Loan the borrower has to pledge gold ornaments or gold coins as collateral with the bank or the other lending institution.
A Gold Loan can be repaid via fixed Equated Monthly Instalments (EMIs).
The banks and other financial institutions facilitate the pre-payment of a gold loan. However, banks and NBFCs charge pre-payment charges that may go upto 5% of the outstanding loan amount.
The documentation involved to take a Gold Loan is comparatively lesser to another type of secured loans.
Loan To Value:
The loan amount varies on the basis of the value of the gold. However, the loan to value may go up to 75% of the gold value.
The lending institution charges a minimal charge as processing fee that can go up to 2% of the total loan amount.
Gold Forfeiture in case of failure in the repayment of loan amount:
In case the borrower fails to repay the loan amount to the lender, the lender forfeits the pledged gold and after melting auctions it within 18 months. However, in some cases, the banks may wait for a relevant period before auctioning the gold in the market.
Unlike another type of loans, no guarantor is required for a Gold Loan.
Eligibility Criteria for a Gold Loan
Who can Apply: Gold Loan can be applied by any salaried individual, trader, farmer, self-employed professional and self-employed businessman.
Age: The minimum age required to apply for Gold Loan is 18 years and above and the maximum age is 70 years.
The purity of Gold: The gold pledged as collateral with the bank or any other financial institution should have a purity of 18-24 carats. The bank checks on the purity of the gold and ascertain the loan amount before the loan approval.
Residential Status: A Gold Loan can only be availed by a resident of India. No NRI is eligible for a Gold Loan.
Gold Loan Documents
The following documents for a Gold Loan are required:
- Aadhar Card
- Passport (Valid)
- Driving License
- PAN Card
- Voter ID
- Photo ID
- 2-3 Passport size photographs