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Go for Gold Loan

In this episode of Dhan ki Baat, we explain how gold loan can come to your rescue during a financial crisis.

4726 views  19 Dec 2017

Gold Loan- Monetising the unused gold

India is one of the largest consumers of gold and accounts for almost 10% of the world’s gold stock. According to the World Gold Council, Indian households are laden with an estimated 23,000-24,000 tonnes of gold reserves, out of which 65% is in houses in rural areas.

Gold loan is a traditional form of loan and has been in existence since times immemorial. Initially, the market was driven by money lenders and pawn brokers,who would usually lend money at exorbitant rates, at times as high as 3-5% per month (30 -60% per annum). The unorganised sector still holds 76% of the overall market.

In the recent times, gold loans have been gaining popularity with the foray of organised players such as NBFCs and Banks. The organised players are regulated by the RBI. Hence, unlike the organised sector, they are transparent and have to exercise some restrictions while lending. This has given an opportunity to the underpenetrated segment to gain access to finance at reasonable rates, thereby leading to Financial Inclusion.

Gold Loan Basics:

  • It is essentially a loan against gold jewellery. As per RBI, Banks and NBFCs cannot lend against bullion/coins and bars.
  • Tenure -It is a short tenure product and you can borrow from one week to one year depending on your requirement.
  • Rate of Interest – Rate of interest varies from one organisation to another.For NBFCs, the rate of interest typically varies from 12 to 24% depending on the tenure of loan and gold quantity.
  • Loan to Value – As per RBI, Banks and NBFCs can lend up to 75% of the gold value (LTV).
  • Security of gold – Security of gold is the responsibility of the lender. The precious metal is stored in Banks and NBFCs in vaults. It is also insured to protect the customer’s interest in case of robbery/theft.
  • Repayment – You are required to pay interest and can pay principal at the time of closure of a loan. You can repay interest on monthly/quarterly/half yearly or annual basis.

Benefits of Gold Loan

Gold Loan is an easy and transparent loan with no hidden costs/clauses.Anyone with physical gold, identification documents and address proof can get one from Banks or NBFCs. The biggest advantage is that it is instantaneous and can be availed anytime. Your loan amount can start from Rs3,000.

Non-banking sources lend as much as 9.25 lakh crore to business, crushing the bank credit flow of 5.02 lakh crore. The unwillingness of banks and the sophisticated process of obtaining loans has pushed the business more towards the Non-Banking institutions.

  • Quick Loan disbursal - Gold loan can be disbursed in 30 minutes and therefore it is very convenient.
  • Minimal paperwork - You are required to submit proof of identification and address, and a PAN card to get a gold loan.
  • Flexibility of repayment - You need to pay service interest during the loan period and can repay the principal in full at the time of closure of loan.
  • Transparent processing system - Unlike the unorganised sector, you have to submit all identity and address proofs to get a loan.
  • Safe custody of gold - Gold is kept safely in vaults at Banks and NBFCs.Strict measures are taken to ensure safekeeping of the yellow metal.

Customer Segments for Gold Loan

  • Business needs - Customers take a gold loan to meet their working capital requirements. Typically, businesses, which witness a gap between manufacturing and sales numbers, find a gold loan convenient. For example,exporters, public work contractor are more likely to take a gold loan.
  • House purchase - Funding margin money
  • Medical emergencies - Family exigencies
  • Children’s education - Building a corpus to fund a child’s higher education
  • Consumption related - Purchase of goods, renovation of house, or for child’s marriage
  • Agriculture - Farmers avail this loan at the time of sowing seeds and repay at the time of harvesting