A gold loan is a loan secured by gold. It is a secured loan in which the lending bank/NBFC takes gold items as collateral, such as gold jewelry, ornaments, etc. The borrower receives a loan with this gold as collateral.
A gold loan can be used instead of a personal loan when borrowing money from a financial institution.
Interest rate on gold loan charged by bank and NBFC.
What happens if a gold loan is not paid?
According to HDFC Bank’s website, “In the event of default on a gold loan, the bank begins by sending email and SMS reminders to the borrower regarding the EMI payment. Certain criminal charges or Interest rates are assessed on the gold loan amount once a fixed term has elapsed.If the gold loan amount is not paid despite repeated follow-ups within the time set by the bank, the bank will sell or auction the gold ornaments to recover the loan money.
Minimum and maximum gold loan amount
The amount of money a person can borrow against a gold item varies by lender. ICICI Bank, for example, offers gold loans ranging from Rs 10,000 to Rs 1 crore. The State Bank of India (SBI) provides gold loans ranging from Rs 20,000 to Rs 20 lakh. Muthoot Finance, on the other hand, offers gold loans starting at Rs 1,500 with no maximum restriction.
In August 2020, the Reserve Bank of India (RBI) increased the loan to value ratio from 75% to 90% through its regulatory statement.
Seizure of gold loan
Whether you have a gold loan with an EMI repayment plan or a gold loan with a bullet payment schedule, you have the flexibility to pay the full amount owed before the end of the loan term. However, gold loans usually have pre-closing fees and vary by bank/NBFC.
According to the HDFC Bank FAQ, “You can foreclose or prepay your gold loan. However, some fees would apply. For foreclosure, the fee would be 2% + GST if closed within 6 months of applying for the loan against gold. There are no foreclosure fees if closed after 6 months.
Duration of gold loan
The duration of the gold loan will also be different depending on the lender. For example, HDFC Bank offers gold loans with terms ranging from three to 24 months. The maximum repayment term for an SBI gold loan is 36 months. Muthoot Finance offers a variety of gold loan plans with varying repayment terms.
What are the fees?
In addition to the processing fee, the applicant for a gold loan may be required to pay the appraisal of the gold which will be used as collateral by the lending institution. For example, HDFC Bank charges Rs 250 for loans up to Rs 1.5 lakh and Rs 500 for loans exceeding Rs 1.5 lakh as appraisal fees.
A bank may charge fees in addition to the processing and assessment fees. Therefore, you must confirm all fees and charges with the bank or NBFC before taking out the loan.
What documents are required?
To obtain a gold loan, you will need to submit a number of documents to the bank or NBFC. Your ID (PAN, Aadhaar, etc.) and proof of address (Aadhaar, passport, voter card, etc.) are usually required, along with your photo. Any additional documentation that may be required varies by lender.