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A Complete Guide to Gold Loans in India

September 18, 2017by Team CapitaWorld0
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Introduction

Since ancient times, India is fascinated by the gold. The gold is not just a commodity but an auspicious metal. To buy gold jewelry on various occasions is a common sight in India. We are proud of gold as it is a sign of wealth and prosperity of the family. They showcase it by wearing gold ornaments on daily basis. Special occasions like wedding are synonymous with decking of gold jewelry.

Indians are so much into gold that it is no wonder that we are world’s biggest gold importer. It consumes up to a third of world’s gold supply every year. According to the data compiled by GFMS Thomson Reuters, India imported 510 tons of gold in 2016 and it surpassed previous year’s import in the first half of the year as it imported 526 tons by June 2017.

Emergence Of Gold Loan

Historically, the gold was considered as an equivalent of cash. The origin of gold loan can be traced back to Southern India where the land owners and money lenders used to lend money against gold.

The contemporary lending institution, like Banks and NBFC, are doing the same thing. They sanction gold loan by accepting the gold jewelry of the customer as a pledge. Currently, all types of gold jewelry including rings, necklaces, bangles etc. and in some cases, specific gold coins. The weight of the gold coin(s) cannot exceed 50 grams per customer as per RBI circular RBI/2012-13/509 DBOD. No. Dir. BC. 96/13.03.00/2012-13.

Featured Of Gold Loan

  • Purpose: The gold loan can serve different purposes like meeting the expenses of the wedding, education of children, medical emergencies and soon.
  • Eligibility: Any person over the age of 18, who owns gold jewelry, can get agold loan. This can be a salaried professional, self-employed, housewives oreven farmers.
  • Interest rates: The gold loan interest rate starts from 10% and goes up to 16%. You can get a rebate of 1-2% on interest if the case is booked under priority sector category.
  • Fees and other charges: Processing fee is usually up to 1% of total loan amount.
  • Basic Documentation: One identity proof, one address proof and one signature proof along with two passport sized photographs.
  • Tenure: From one month to up to twenty four months.
  • Repayment Options: The options like EMI or payment of interest upfront and repayment of the principal loan amount at the end of the loan tenure are available.
  • Gold Storage: The lending institution kept customers gold items in a strong vault, which is covered by CCTV camera 24 by 7.

Gold Loan Process

In easy steps, with the example, we can understand that how the gold loan is being processed and loan amount can be calculated.

  • Step 1: First of all, the purity of gold is checked. On the basis of that only loan amount is calculated.
  • Example: A customer is having 20 Karat gold jewelry of 14 grams, in which 10 grams is a gold component and 4 grams is non-gold i.e., impurity. Usually, a gold item contains impurity in form of silver, zinc, nickel, cadmium, stone etc.
  • Step 2: The next step is to check the market rate of gold. The closing rate of previous day’s gold market is taken into consideration.
  • Example: Suppose it was Rs. 20,000/- for 20 Karat of gold on the closing of the previous day. Then Rs.20,000/- will be taken as its market rate.
  • Step 3: The RBI allows maximum LTV of 75% of the value of gold.
  • In continuation with above mentioned example: It will be Rs.15,000/- (i.e. 75 % of 20,000/-).
  • Step 4: Then the lender deducts processing fee and other charges from the loan amount.
  • Example: Suppose the processing fees and other charges are: Rs.1000/- . So, the final amount of the loan payable to customer will be: Rs.15, 000-1,000 = Rs.14, 000/-
  • Step 5: After calculating the final loan amount, the loan agreement is signed by the customer. Usually, Banks or NBFC do not give cash, when the loan amount is more than Rs. 20,000/-.

To Sum Up

The gold loan has become one of the quickest ways to arrange funds for all segments of customers. Due to that market of gold loan has become more competitive these days. Earlier, the customer had fewer options and had to run after lenders. The scenario has been completely changed now. Now, you can see frequent ads of gold loans on print & web media. You can get best gold
loan scheme at CapitaWorld.


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