Indians have a special affinity for gold, not just for its beauty but also as a financial safeguard against inflation and economic uncertainty. Life is full of unexpected twists and turns, and at times, individuals need quick access to cash.
In such situations, Gold Loans come to your rescue - a secure and hassle-free way to unlock the value of our gold assets.
In this comprehensive guide, we will explore the world of Gold Loans, including what they are, how they work and the rules and regulations that govern them.
What is a Gold Loan?
A Gold Loan is a type of loan that offers financial support in exchange for preowned gold as collateral. It allows you to use your gold jewellery or ornaments to secure a loan to fund your urgent monetary requirements.
In essence, it is a simple and convenient way to unlock the value of your gold, providing you with much-needed liquidity without having to sell the precious metal. By pledging your idle gold assets as collateral, you can get the necessary funds to pay off debts, finance a big purchase, or cover unexpected expenses.
As your possessed gold secures Gold Loans in India, the interest rates are often significantly lower than what you would pay on other types of loans.
How Gold Loans Work?
You take your gold jewellery or ornaments to a lender who assesses their value based on purity, weight, and market value. Then, they offer you a loan amount based on the evaluated value.
The loan is usually offered as a percentage of the gold's value. This option allows you to support your immediate financial needs without much hassle. The best part is that you do not have to sell your gold to get the funds; you just pledge it as collateral and get your gold back once you repay the loan amount with applicable interest and charges.
Types of Gold Accepted
When applying for a gold loan, it is important to understand that not all forms of gold are accepted. There are certain limitations on what lenders allow you to pledge.
Here is a quick overview to help you understand better -
What is Accepted?
You may pledge the following types of gold items, provided they fall within the purity range of 18k to 24k -
- Jewellery – Gold items such as necklaces, rings, bangles, earrings and chains are widely accepted.
- Coins - Gold coins are also accepted. However, the Reserve Bank of India (RBI) has capped the maximum eligible weight at 50g per borrower.
What is Not Accepted?
Gold Bars - These are not accepted due to gold's speculative, non-productive nature.
Heavily Stone-Set Jewellery - Often excluded, as stones make accurate valuation of the gold content difficult.
Gold Loan Process in India
Checking Eligibility
The first step is to fulfill the basic eligibility requirements. You must be at least 18 years old and the rightful owner of the gold.
Gathering Required Documents:
Provide one identity proof (Aadhaar, driving licence, PAN, voter ID, passport, etc.) and one residential proof. Submit these documents to the lender to proceed with the loan application.
Choosing a Lender:
This is a crucial step in the Gold Loan process, as different lenders offer varying loan terms.
You must compare rates, terms, and conditions from multiple lenders, such as banks and NBFCs like Manappuram Finance Limited, and select a lender that best fits your needs and budget.
Visiting the Lender’s Branch:
You must visit the lender's branch in person to submit your application and pledge your gold ornaments.
Moreover, reputed lenders like Manappuram Finance Limited offer online Gold Loans, wherein you can get easy access to funds in just 3 simple steps.
Understanding the Loan Amount:
The lender will assess the value of your gold, and offer you a loan amount that will be a percentage of the gold's value, typically up to 75%.
Loan Disbursal:
Once you accept the Gold Loan offer, the lender will disburse the loan amount to you. This is a quick and straightforward process, and you will soon receive the funds you need.
Loan Repayment:
You can repay your gold loan through different methods, depending on your financial comfort. Lenders typically offer three main options -
- Bullet Repayment - Under the bullet repayment method, you pay the entire principal, along with accumulated interest, in a single lump sum at the end of the loan tenure.
- EMI - You make regular monthly payments, covering both interest and a portion of the principal.
- Partial Payment - You repay in smaller amounts at your convenience throughout the loan term, helping you gradually reduce your outstanding balance.
Gold Loan Charges
Interest Rate - This is the cost of borrowing the loan amount. At Manappuram, it starts from just 9.90% p.a.
Processing Fee - This is a nominal charge of ₹25 (plus tax) levied to cover the administrative cost of processing and sanctioning the loan.
Appraiser Charges - Usually included in the processing fee, this charge covers the professional evaluation of your gold’s purity, weight and market value before loan approval.
- Foreclosure Charges - These are charged when you pay off your loan before the scheduled tenure ends. Leading NBFCs like Manappuram Finance Limited charge no early repayment fee, letting you clear your debt whenever you are ready.
Repaying your Gold Loan is as important as getting it. You will need to choose a repayment plan that works for you.
Gold Loan Rules and Regulations
LTV Ratio:
The Loan-to-Value ratio for Gold Loans in India is capped at 75% by RBI. It means that lenders will only give you a loan for up to 75% of the current market value of your gold.
Loan Tenure:
Gold Loans typically have a short tenure, meaning they will not exceed 12 months from the date of sanction.
Gold Ownership:
To verify ownership of pledged jewellery, lenders do not necessarily require original receipts. However, for gold exceeding 20 grams, borrowers must provide documentation explaining the ownership.
Gold Valuation:
Lenders have to follow the Reserve Bank of India's (RBI) guidelines when valuing gold and disbursing loans.
At Manappuram, we adhere to these guidelines to ensure fair valuation. Your ornaments are assessed on the spot at our branch for precise evaluation. Once the loan is approved, the funds are disbursed to you instantly, ensuring a seamless borrowing experience.
Does a Gold Loan Affect Your CIBIL Score?
Yes, a gold loan can affect your CIBIL score. Timely repayments can strengthen your credit profile and positively impact your score, while missed or delayed payments may lower it.
Unlike personal loans and other unsecured credit facilities, gold loans from Manappuram do not require a CIBIL score at the time of application, making them a more accessible borrowing option.
Things to Keep in Mind
A little preparation can go a long way when applying for a gold loan. Before getting started, ensure your gold meets the required purity standards, review the applicable charges and select a repayment option that fits your budget and cash flow. This can help you enjoy a smoother borrowing experience and avoid surprises later.
For added convenience, you can use our Online Gold Loan (OGL) platform and access and manage your loan digitally, anytime, anywhere.