What is the meaning of gold loan and how does it work?

India is one of the largest consumers of gold, accounting for total gold imports of 140 tonnes in just the first three months of 2021. With the Covid-19 pandemic and subsequent economic downturn, more and more people are investing in gold. Almost every household possesses some quantity of this precious metal, and this makes a gold loan the easiest and fastest way to access funds.

What are gold loans?

A loan against gold is a secured advance wherein borrowers use gold ornaments as collateral to access funds. The loan amount sanctioned by a lender is generally a percentage of the gold’s value, called Loan to Value, and can be as high as 90% according to RBI guidelines. The borrower can repay this loan through monthly installments or via a lump sum payment made for the entire outstanding amount, usually at the end of a loan’s tenor.

Due to the immense popularity of gold in India, these loans are a great option to avail funds during an emergency. Financial institutions like Bajaj Finserv offer gold loans with a high LTV (Loan to Value) and nominal interest rates. These loans also tend to have a short tenor and minimal additional charges. There are no end-use restrictions for gold loans or requirements of high credit scores to avail the funds.

What does the process to avail gold loans entail?

The process of availing of a gold loan is similar to that of other secured loans and is very simple and hassle-free. Following is a step-by-step guide to availing of a gold loan:

  • Firstly, you will want to check interest rates and LTV offered by the financial institution of your choice. Your requirements for low-interest rates, high LTV, or longer tenor determine which is the best gold loan for you. Also, check if they offer you loans with nominal processing fees and no hidden charges.
  • If you don’t want to undertake the online application process, take the gold jewellery to the financial institution of your choice. You should carry a government-issued ID (like a Voter ID card, Aadhaar card, PAN card etc.) as identity and address proof, income proof, and a bill/invoice of the jewellery.
  • The lender will evaluate the gold article and verify the documents. Then, they will sanction the gold loan and disburse the amount.
  • You may also request a safe evaluation process and get loan sanctions from your home. The financial institution will send a company representative to visit you. They will ask for some documents, complete the KYC and evaluate the jewellery using a carat meter.
  • Next, they will inform you about the interest rates based on the purity of the gold, and later, the loan amount will be disbursed into your account.
  • You can also apply for a gold loan online through the financial institution’s website. Click on the ‘Apply Now’ or similar button and fill out the details of the application form. A representative will contact you via call/SMS and take you through the loan application process.

Eligibility criteria for gold loans

To avail of a gold loan in India, one must meet the following eligibility criteria:

  • They must be aged between 21 and 70 years.
  • Must be salaried individuals or self-employed professionals, businessmen, farmers, or traders and have a steady income.

Documents required for KYC

Keep these documents ready for instant approval for your application request:

  • For identity proof: PAN card, Voter ID card, Aadhaar card, driving license, or any other Central/State issued photo identity card.
  • For address proof: Aadhaar card, passport, ration card, Voter ID card, bank account statement, or any utility bill (water/electricity/telephone)

You may also need some income proof and documents showing ownership of gold jewellery. After submitting these documents, the loan application will be processed instantly.

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