TomorrowMakers

A gold loan is the most efficient way of mobilising your idle gold to meet urgent financial needs. Here's where it can come to your rescue.

6 Situations in which a gold loan can come in handy

An unexpected shortage of cash can put an untimely end to an opportune business venture. In a worse scenario, it could stall medical attention in an emergency. At such times, as you weigh every possible option to meet the shortfall, you tend to miss out on one of the most liquid assets – gold. In trying times, the yellow metal can turn out to be a precious yet untapped financial resource.

Banks and non-banking financial companies (NBFCs) offer loans against the value of gold as collateral. If you happen to default on repayment, the bank sells the pledged gold to recover the dues. A loan against gold is multipurpose, in the sense that you can use the money borrowed for anything that isn’t illegal or speculative.

6 Situations in which a gold loan can come in handy

Here are some purposes for which you can seek a loan against your gold:

1. Business: A liquidity crunch can compel you to put some of your business plans on hold, such as buying equipment or space to expand. Delayed realisations from debtors and insufficient contingency reserves may prevent you from meeting an emergency. In such a situation, you can approach a bank offering gold loans and borrow up to 60-75 percent of the market value of the gold you pledge. If gold prices happen to be at an all-time high, you’re in luck.

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2. Education: If your loan application was rejected due to a low credit score, a gold loan can come to your rescue. Unlike with other loans, the gold loan EMI comprises only interest. You repay the principal on closing the loan, which can be earlier than scheduled, without paying additional charges. Also, the fear of default risk is allayed as your gold is lying with the bank as security. Approvals can come through with basic identification, sans income and employment proof.

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3. Healthcare: Nothing can be more unfortunate than an unexpected medical emergency. Unfortunately, medical insurance doesn’t cover all expenses, and going cashless may not be an option for all. When timely treatment matters, a gold loan could be your best bet, thanks to the quick and easy processing involved. Immediately after you apply, the bank can value your gold and disburse funds even as you wait. In a matter of hours, you could be paying for that expensive life-saving treatment.

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4. Wedding: You may have left no stone unturned in planning your dream wedding. However, just before the big day, when you are cash-strapped, what if you suddenly realise that you forgot to budget for a key expense? Instead of compromising on your wedding plans, you can use any gold that is not required for the ceremony as collateral to finance the expense.

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5. Down payment: Often, while buying a car or a house, there could be expenses that the specific loan may not provide for. Instead of swiping your credit card or going for a personal loan with a high-interest rate (as much as 18-24 percent), you could borrow against your gold. The interest on gold loans is much lower at 11-15%. [5]Besides, these loans can be sought for tenures from a few weeks up to a year. 

 

6. Travel: You’re all set for an exotic vacation overseas. A week before the travel date, let’s assume you decide to carry some cash with you as you wish to cut down on your credit card usage. Simply walk into a bank with your gold, apply for a gold loan, and put aside the disbursal for spending during your trip.

6 Situations in which a gold loan can come in handy

Below are some popular banks and NBFCs that offer loans against gold:

Bank/NBFC Loan amount Interest rate Repayment tenure Loan processing fee Prepayment charges Miscellaneous
HDFC Bank’s Sampoorna Bharosa For rural customers: Less than Rs 50,000  Starts at 10%; even lower for HDFC customers           -  0.5% of the loan amount 1% Valuation charge, stamp duty, service charge
 
For urban customers: Minimum Rs 50,000
Axis Bank For new customers: up to Rs 4 lakh 14.5-17% p.a. 6-36 months 1% Prepayment: Nil  Valuation charge: Rs 500
   
Existing customers: From Rs 25000 to Rs 20 lakh Late payment: 2% per month on the overdue amount
State Bank of India (SBI) For rural customers: Minimum loan amount Rs 10,000 Starts at 11.5%; special discount for SBI account holders 30 months Rs 256 - Rs 1022 on non-hallmarked and hallmarked (varies) Nil              - 
 
For urban customers: Rs 20,000 to Rs 20 lakh
Central Bank of India From Rs 10,000 to Rs 20 lakh Overdraft at 11.65%  36 months 0.25%               - Against security pledge of 22-carat gold ornaments or coins
Demand loans at 10.65%
Federal Bank Rs 75 lakh 13-13.50% 12 months (either as a lump sum or in instalments)         -           - 22-carat gold ornaments to be pledged as security
Manappuram Finance Up to Rs 1 crore 12% 12 months Rs 200 Nil           - 
Muthoot Finance Rs 1500 to Rs 1 crore 14-24% 1-12 months               - 
IIFL 75% of the market value of the gold pledged Starts at 9.24% p.a.            -  Nil Max Rs 150          - 

*The figures mentioned in the above table may vary from time to time or as per the loan amount and various other factors

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Conclusion

It’s not for nothing that we say something is ‘worth its weight in gold’. It’s true that sentimental attachment might come in the way of using gold as collateral for a loan. However, practically speaking, such a loan will transform your idle gold into an economical and easy source of short-term funding.


Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.