What is a Gold Loan?

• A gold loan is a secured loan that can be obtained by keeping a gold article as collateral. The interest rate on gold loans starts from 7.35% to 29% per annum. The loan amount varies from Rs. 1500 to Rs. 5 crores. The repayment period starts from 3 – 48 months. Apply for a gold loan on GrowScore by picking the lender of your choice from a pool of lenders. We offer a seamless and simple application process.

Key Highlights for Gold loans

• 1. Secured loans - Gold loans are secured loans that use a gold article as collateral or security. Anybody with a gold article to pledge as security can obtain a gold loan.
• 2. Interest rates - Gold loan interest rates start from 7.35% and go up to 29% per annum.
• 3. Loan amount - The gold loan is available from Rs.1500 to Rs.5 crores.
• 4. Repayment period – There is flexibility to choose the repayment period from 7 days to 240 months.
• 5. Minimal documentation – Gold loans don’t need a credit score or income statement in most cases. A gold loan is approved based on the value of the gold pledged as security.
• 6. LTV ratio - The loan-to-value (LTV) ratio for gold loans is decided by the RBI at 75%. What this means is that you can get a loan worth 75% of the value of the gold pledged.
• 7. Usability – There is no restriction on the usage of gold loans and they can be used for a variety of purposes. This may include vacation expenses, emergency medical expenses, or educational needs.
• 8. Processing time – Minimal processing time is required for Gold loans as there is minimal documentation required.
• 9. Types of Fees – The types of fees associated with a gold loan are processing fees, penalty fees for non-payment of interest, late payment charges, etc.
• 10. Rebates – Some lenders might want to offer a rebate of 1%-2% based on the borrowers’ financial discipline. Those who repay their interest regularly might be offered a rebate.

Factors Affecting Gold Loan Interest Rates

For the approval of a gold loan, lenders look at factors that determine the interest rate. The lenders want to make sure their decision to lend is not a risky one.

Following are some of the important factors that determine the gold loan rate –

• 1. Income Level – Probably, one of the most important factors that a lender will consider while approving a gold loan. Lenders are more comfortable about your repayment capacity if the income level is high and hence might offer a lower interest rate. Lower-level income, however, might attract higher interest rates. It’s safe to say that income level and interest rates are inversely proportional.
• 2. Gold Market Price – The market prices of gold also determine the interest rates the lenders want to offer. Typically, the loan amount would be around 60-75% of the value of the gold article kept as collateral. If the gold market price is high, the value of the collateral also goes up and hence the lender’s risk goes down. The lender feels more comfortable in extending a low rate of interest. However, in case the gold prices are down, the lender’s risk increases, and the interest rates would go up.
• 3. Principal Loan Amount – The rate of interest also depends on the amount of the loan or the principal amount. The higher the principal amount is, the lower your interest rate would be. This is because the lender has a higher-value loan gold article pledged as security and hence they are comfortable offering a lower rate of interest.
• 4. External Benchmark Lending Rates – When the Reserve Bank of India (RBI) changes its policies/rates, the gold loan interest rates also change. The gold loan interest rates are believed to be linked to an external lending rate which could be the repo rate or the 10-year government bond rate. They have an impact on the gold loan interest rate also and are directly proportional.
• 5. Credit Score – Credit score is one of the most important factors looked at by lenders while approving a gold loan. The higher the score is, the higher the chances of the borrower getting an attractive interest rate. The lower your credit score is, the higher the interest rate will be most likely. It is best to always research all the options available for you and then proceed with the application for the loan.

What are the advantages of a loan on gold?

It is a quick process: In India, gold loans are some of the quickest loans to be sanctioned as the banks have your gold as security in case of default. In many cases, you could walk out of the lenders office with the loan amount. The loan can be approved, over the counter, in a matter of minutes or a few hours. The loan amounts can range from just Rs.1000 (depending if you live in rural area) to Rs. 1 crore. The minimum and maximum amount lent varies according to the lender.

Quick disbursal: Many lenders can have your gold valued quickly and sanction the loan immediately, after verification of the purity and value of the gold. Unlike home or auto loans, a gold loan application does not require to go through multiple levels of approval.

Minimal documentation required: Since you are providing your gold as collateral, banks do not need the extensive documentation or long decision making process unlike in the case of a home loan or personal loan. With many lenders, all you need is one piece of photo ID and one piece of address proof, photographs and signature proof. The ID and residence proof documents include ration card, voter ID, driver's license, passport or Aadhaar card among others.

Another advantage of a gold loan is that you are not required to submit a salary certificate since your gold is used as collateral. So, even if you are currently unemployed or do not have a good credit score, you will still be eligible for this kind of loan. However, it is possible that for loans above a certain amount, some lenders might ask for a salary certificate.

Safe way to utilize an idle asset: Instead of storing your gold in a locker or at home, you can use it to raise money. Gold is a valuable asset that lies idly stored most of the time. At the same time, when you use your gold to get a loan, it will be physically safe with your lender during the loan period. You do not run any extra safety risk by using gold as collateral.

Lower interest rates: In general, interest rates on these loans are lower than on personal loans since the lenders have your gold as collateral. In addition, with some lenders, you may not have to pay a penalty on pre-payment of the loan.

Factors Affecting Gold Loan Interest Rates

For the approval of a gold loan, lenders look at factors that determine the interest rate. The lenders want to make sure their decision to lend is not a risky one.

Following are some of the important factors that determine the gold loan rate –

• 1. Income Level – Probably, one of the most important factors that a lender will consider while approving a gold loan. Lenders are more comfortable about your repayment capacity if the income level is high and hence might offer a lower interest rate. Lower-level income, however, might attract higher interest rates. It’s safe to say that income level and interest rates are inversely proportional.
• 2. Gold Market Price – The market prices of gold also determine the interest rates the lenders want to offer. Typically, the loan amount would be around 60-75% of the value of the gold article kept as collateral. If the gold market price is high, the value of the collateral also goes up and hence the lender’s risk goes down. The lender feels more comfortable in extending a low rate of interest. However, in case the gold prices are down, the lender’s risk increases, and the interest rates would go up.
• 3. Principal Loan Amount – The rate of interest also depends on the amount of the loan or the principal amount. The higher the principal amount is, the lower your interest rate would be. This is because the lender has a higher-value loan gold article pledged as security and hence they are comfortable offering a lower rate of interest.
• 4. External Benchmark Lending Rates – When the Reserve Bank of India (RBI) changes its policies/rates, the gold loan interest rates also change. The gold loan interest rates are believed to be linked to an external lending rate which could be the repo rate or the 10-year government bond rate. They have an impact on the gold loan interest rate also and are directly proportional.
• 5. Credit Score – Credit score is one of the most important factors looked at by lenders while approving a gold loan. The higher the score is, the higher the chances of the borrower getting an attractive interest rate. The lower your credit score is, the higher the interest rate will be most likely. It is best to always research all the options available for you and then proceed with the application for the loan.

Factors Affecting Gold Loan Interest Rates

Emotional issue: Gold as an asset has emotional value in India since it is largely in the form of family jewellery. Providing gold as a collateral means that you run the risk of losing your family jewelry in case you are unable to repay the loan. This can cause undue mental and emotional pressure not just on the borrower but the entire family.

Quality of lender: There are several NBFCs in the country who offer attractive terms for these loans. However, some of them could be poorly run and could possibly shut down without notice. It is very important to study the various lenders and choose one that has a good reputation. In addition to these NBFCs, several nationalized and private banks offer these loans.