Loan Against Gold

Gold has for years been one of the favorite assets to be passed on as a heritage value to next generation or otherwise for self consumption. Hardly have we ever considered it as an investment asset i.e. To be redeemed for goal achievement. Hence, we always have maintained that use gold as an diversification tool but never invest all your savings in to it. Since, if any investment is never sold or used for our goal fulfillment, it has no place in our net worth. It is just a personal asset for gratification. So, if this asset can be now used for meeting your short term funding requirement without actually parting with it , it should be considered as a useful end purpose of gold. So, we today learn about loan against gold or gold loan.

What is Loan Against Gold?

A loan which is availed by pledging your gold ornaments ( around 18 – 24 karat) with the lending institution is known as gold loan. The loan cannot be availed against gold coins or bars. The loan is sanctioned based on purity of gold and verification of supporting gold documents. The value is decided on basis of gold and all stone weight is deducted from the same.Beyond this basic identification papers and residential of borrower is verified. The maximum lendable limit of Loan to value of ornaments is 75% but the lending banks can themselves decide their individual limits for lending. This rule is only applicable for non agricultural end usage.

What is tenure of gold Loan?

The tenure for gold loan differs for different lending authorities. It varies from 12 months to 48 months.

What is the interest rate charged?

 

The average interest rates floats from 12% -13% depending upon the bank average floating rates. Also, special lending rates are made available for women lenders or for end use in agricultural sector.

How does the repayment of this loan happen?

Barring the interest repayment on monthly basis, the borrower can repay the entire loan at the end of tenure. The loan can be repaid at any of the branches or online as per the bank features but the pledged gold can be released only at the branch where is it physically stored.

Word of caution

For years gold has been used to be pawned with unorganised segment of lenders for very high interest rates but now when we have the opportunity to gain access to more lower rates of interest we should use it wisely. Please don't get attracted to extreme low rates offered by some novice lender since the security of your gold hedged could be compromised. Also, it is to be considered that the loan is taken to be repaid and not to be used as a never ending cycle for easy money.

In the coming week , we will discuss the recently launched schemes by government for monetization of gold.