Gold has been the favorite ornament among Indians since centuries. Indians love owning and investing in gold. As per the World Gold Council (WGC), the annual gold demand in India from 1987 until 2016 has increased by 804%.

And the trend does not seem to die anytime soon. Apart from being used for industrial, commercial and investment purposes, gold can be a savior in times of a financial emergency with the gold loan.

What are Gold loans?            

These loans are secured loans where gold jewelry is used as collateral. The borrower gives gold coins or gold jewelry to the lender and gets a loan. The loan amount is usually a percentage of the gold’s value.

This loan is then repaid through monthly installments leading into the release of the gold collateral. Nationalized banks, private banks, and other financial institutions like NBFCs offer these loans at affordable interest rates. Instead of selling gold, many people prefer to opt for a loan.

What documents are required for a gold loan?

A gold loan requires proof of identity which can be;

  • A driver’s license,
  • PAN card,
  • Passport, or
  • Aadhaar card if the debtor does not have a PAN card.

Proof of address which can be;

  • An electricity bill,
  • Ration card. or
  • Telephone bill, in the name of the debtor
  • Proof of signature.

Besides these, the debtor is required to provide a passport size photograph and fill up Form 60.  However, some lenders also ask for proof of income in order to help them decide the loan amount.

What are the interest rates for gold loans?

Gold loans being secured loans, the interest rates are not as high as those of personal loans. But these rates may differ across various banks and NBFCs. The interest rate can be anywhere in the range 9-20% depending upon the type of lender.

This factor, more often than not, becomes the deciding factor for the debtor as to the choice of lender. Many banks and NBFCs now offer the facility of the gold loan interest calculator which helps the debtor in getting a clear idea on the final loan amount to be repaid.

What are the fees and other charges involved when applying for a gold loan?

Generally, lenders ask for a processing fee of up to 1% of the loan amount. In addition to a processing fee, the lender may also require the debtor to pay for the documentation, valuation of the gold, renewal fees based on the loan amount, and stamp duty as per state laws.

A penalty may also be charged in case of late payments. The actual amount of charges levied varies from lender to lender. So, before availing a gold loan, this also needs due consideration. 

How do lenders determine the gold loan amount?

Lenders evaluate gold purity and weight before confirming the final loan amount. Based on the gold’s purity and its weight, the gold appraiser determines the market value. The lender may offer to lend out a loan with a value up to 75% of the market value.

This is called the ‘Loan to value ratio’ (LTV). For instance, for gold of value Rs 1 lakh, the gold loan amount granted cannot be higher than Rs. 75,000. However, some could get even a lower loan amount.

This is because lenders often consider the borrower’s repayment capacity too. However, unlike personal loans, lenders do not take the credit score into consideration.

Hence, we can sum up that while gold loan often proves to be a lifesaver in cases of financial emergencies, at the same time, the types and number of lenders available in the market is often a source of confusion.

Top 5 Gold Loan Interest Calculator Online 2019

However, with simple and hassle-free gold loan solutions offered by reputed companies like Unimoni, it becomes a safe and smooth process. The superfast loan approval and gold loan interest calculator makes it easier for lenders to get an idea of what they are stepping into and what should be the tenure of the loan.

Please note that a person may lose the gold kept as collateral in case of non-repayment of the loan amount.