Gold is viewed as an auspicious element in India. Thus Hindus observe a special day called Dhanteras shortly before Diwali, the festival of lights. India has enough gold to supply the tremendous demand, which is a positive thing. Statista claimed that the country’s gold stockpile was between 600 and 700 tons in 2019.
Gold is the major factor that fuels the jewellery sector in the nation. Recent projections predict that the jewellery market will bring roughly Rs.6 billion to India’s GDP by 2021. Even though gold is supposed to bring good luck, many houses don’t utilise it.
What is a gold loan?
A loan backed by gold is termed a gold loan. People must first put up their gold jewellery as collateral to secure a loan from an NBFC. The loan-to-value ratio shows a borrower how much they may borrow depending on how much their collateral is worth.
The Reserve Bank of India used to set the ceiling LTV for gold loans in India at 75%.
But right now, anybody may pick principles that are worth up to 90% of the value of gold. The restriction won’t apply to gold loans granted on or before March 31, 2021, according to a statement from the RBI.
For example, if the market value of the gold you promised is Rs. 1 lakh, you might collect up to Rs. 90,000. Borrowers of gold loans should realize that the LTV can’t be greater than 90% to prevent any mistake.
Gold In India
It is difficult to obtain an accurate count of the gold held by Indian households, but estimates place the total amount at approximately 25,000 tons. Since such a substantial quantity of gold is secured in vaults and safes, it cannot contribute to the growth of the Indian economy. Even if only a small portion of this inflow of assets worth Rs. 110 lakh crore is invested in the national economy, it could significantly impact GDP growth.
You have a few options, one of which is to sell the gold directly, while another is to use it as security to get a gold loan.
Eligibility for Gold Loans
People who aren’t eligible for traditional loans might find that their best option is to look into gold loans instead. You must be 18 years old to apply for one of these loans. In addition, you should accessorize with jewellery or other items made of the type of gold that has been specified and wear them. To qualify for one of these loans, a credit check or meeting any other criteria is not required of you.
Because gold is a reliable form of collateral, the requirements might not be as stringent. If the loan is not repaid within the allotted time, the lending company can liquidate the asset pledged as collateral to secure the debt.
Kinds of Gold that Are Eligible as Collateral
Even if a lender allows a borrower to use any gold they own as collateral, the borrower is still required to fulfil a set of minimum requirements. For instance, the item in question should have a purity of 18 karats or higher. In addition, gold jewellery made of gold can only be hypothecated if a trustworthy company manufactures it. As a result, you may be unable to store gold in the form of coins or bars.
Paperwork for Gold Loan
The following is a list of the documentation that a potential borrower would be required to provide, although the exact documentation process could vary from one lender to the next:
Identification documents such as
- Aadhaar card.
- Permanent Account Number (PAN).
- Voter Identification Card (VID).
- Driver’s License (DL).
- Passports are required.
The individual who applies is required to provide evidence of their current address. This can be in the form of an Aadhaar card, a voter identification card, a passport, a driver’s licence, or even utility bills.
When searching for the best gold loans online, a potential borrower should make it a point to ask whether or not they need to bring anything else along with them.
Advantages of Gold Loans
Gold loans have been performing well recently, thanks partly to the following factors.
Rapid Approval and Payment
Borrowers of gold loans may be able to get their funds within a few hours after approval rather than having to wait days or weeks. As a result, this sort of finance may be utilized to cover unforeseen expenses such as medical expenditures or company difficulties.
The short, straightforward application procedure is a plus, along with the quick cash. Most loan applications may be completed online, saving borrowers a significant amount of time.
Services that are easily accessible
Whether for a large or small gold loan, receiving credit at one’s front door may make a great difference in the borrower’s life. After the application is submitted, a lender’s representative will visit the borrower’s home to measure the gold and return it to the lender, along with any supporting documentation.
Within minutes, the gold loan principle is electronically deposited to the borrower’s account, and the collateral gold is moved to a secure location. Because of this approach, the individual in need of a gold loan does not have to take time out of their hectic schedule to visit the office of a gold loan provider.
Interest rates that can be paid
As previously stated, the underlying security reduces financial institutions’ default risk. Because the lender’s risk is minimal, they may issue these loans at affordable rates. Because of the cheap pricing, it is simple to use and accessible. Reduced gold loan interest rates imply lower monthly EMI payments, making it simpler for borrowers to repay their loans.
According to an April 2022 study, gold loans are growing faster than any other type of retail loan. The many useful features and ease of obtaining these lines of credit are rapidly changing how Indians perceive them. Because there are a lot of gold owners in India, the rising demand for gold loans is likely to last for a while. Get the best with Piramal Finance.