Per the KPMG report, the Indian organized gold loan market is expected to grow at 13.7% CAGR annually. Come 2020, the market is likely to touch INR 310100 Crores. The numbers suggest the growing popularity of Loan against Gold in gold-savvy India.
You too might be contemplating a loan against gold to fund an urgent requirement, say your child’s higher education or a hefty medical bill. Here’s what all you need to know about it.
What is the loan against gold?
The loan against gold or gold loan is gold-based borrowing. Herein, you pledge gold jewellery, gold coins or gold bars with a bank or NBFC. The pledged gold serves as collateral against which the loan is sanctioned. The loan plus the applicable interest have to be paid off in instalments. Once fully paid, you receive the possession of the pledged gold. Any default in repayments can attract penalties. The lender has the right to sell the gold for recovery in case of non-payment.
You can expect up to 80% of the gold’s value as Loan to Value (LTV). The LTV depends on the worth and purity of the pledged gold, its form and other such factors. The purer the gold, the higher will be the LTV. Rather, gold coins and bars fetch you higher LTV vis-à-vis gold jewellery. The precious stones embedded in jewellery are not taken into account for the LTV. The loan is a short-term arrangement with tenors ranging from one month to 12 months. But you can approach the lender to hike the tenor on pre-agreed terms if needed.
Benefits of loan against gold:
The popularity of Gold Loan cannot be nailed down to a single factor. Here’s a few of them.
The gold loan represents secured loans. The pledged gold assures the lender of timely repayments. As the risk of default is covered, the lender can offer competitive interest rates, ranging between 13 to 16% per annum. Note that, the interest rates are lender-specific, meaning they vary from a lender to lender. The loan amount and LTV also play a part in determining interest rates. For instance, the pledged gold is worth INR 100000. The sanctioned amount of INR 80000 will attract higher interest rates as compared to INR 60000.
Gold Loan is an easy, quick and trouble-free way to raise funds. The loan involves simple eligibility, documentation and processing. Thanks to the pledged gold, the lender won’t even look at your credit score or income for loan eligibility. Feel free to apply online, as most lenders have a web component for gold loaning. The lender will evaluate the value of your gold and sanction the loan within a few hours. The cash for gold will be disbursed in your account at the earnest.
Low cost of borrowing:
Loan against gold is one of the most cost-effective borrowing arrangements around. Not only the interest rates are low but the processing fee and prepayment charges are modest as well. You can repay the loan in full anytime during the tenor when your means allow. However, it’s vital to opt for the right lender, as processing fee and prepayment charges are lender-specific.
No end use restriction:
This loan is not earmarked for a specific purpose. You have the liberty to use the cash for gold to fund foreign education, business expansion, buy real estate or refinance a high-interest loan.
Your gold loan is immune to any gold price fluctuations. Suppose the gold prices dip during the tenor, the lender cannot ask you to make up for the difference.
There’s no downside to a gold loan for a responsible borrower. But you must keep in mind:
The lender can dispose of the gold to recover dues if you fail to repay on schedule. In this case, you’ll be losing the family jewellery that might be of emotional value to you. Worst still, the value you get for the pledged gold is way below the market price.
Where to get the loan:
Private and public sector banks and NBFCs are aggressively promoting cash for gold. But going for NBFCs makes perfect sense. They ensure quicker approvals and disbursals, do not charge prepayment penalties and offer more flexibility in repayments. With 132 years of legacy in lending and customer-centric approach, Muthoot Fincorp is your best bet for gold loans.