How Does Gold Loan Process Work

Indians buy gold jewellery quite often for festive occasions. Apart from being an investment option, you can also borrow money from lending institutions against mortgaged gold. 

Now a genuine question arises – how gold loan works? Numerous NBFCs help you get a loan amount sanctioned against mortgaged gold as per current market value. 

Now, let’s figure out what is gold loan process and how a lender determines the approvable loan amount for each loan seeker. 

Financial experts recommend applying for a gold loan as it is an effective way of obtaining quick credit. In addition, unlike other secured loan types, no restrictions are set on the end uses of the disbursed sum. Therefore, your loan request is readily accepted, whether for an emergency medical purpose or an abrupt foreign vacation. 

All you need to do is sign up for a new account by visiting the customer portal of the lender’s website. Now navigate through the interface to see the various credentials like eligibility criteria, list of documents required, tenure of the loan, etc. After getting an idea regarding the terms and policies, you can proceed to the next step by acknowledging the conditions mentioned in the virtual loan agreement.

We have listed each step of the gold loan application process below: 

• Step 1: First, locate the application page on a particular lending organisation's website.

• Step 2: After entering the page, fill in your personal details like name, DOB, and contact information. 

• Step 3: Next, enter the necessary address information, such as the name of the state, city, etc. Now, select the nearest location of your lender's office as per selected pin code. 

• Step 4: Further proceedings continue after a representative visits your home as per the scheduled date. You can choose the date at your convenience. 

Before approving any loan amount, a designated official conducts certain purity checks and determines the exact weight of the pledged gold. In this manner, the market value of the gold is accessed, and this is how gold loan works.

Banks and NBFCs will provide you with a gold loan if you meet the following credentials:

• You must be an Indian whose age varies between 21 and 70 years. 

• You must either be a salaried individual/ an entrepreneur/a trader/ farmer, or a self-employed person.

Very few basic documents are requested from you as the loan availing process is quite simple. Thus to secure a loan, make sure to present the below-mentioned documents: 

One of the biggest reasons Indians generally go for gold loans instead of personal loans is their lower interest rates. If you avail big business loans, the interest rate can be as low as 9%. You need to pay lower interest because the lending process involves collateral. 

In the table below, you will find various gold loan interest rates set by some of the top lending agencies against the loan: 

Please note that the interest rates, as mentioned earlier, are subject to change as per the current policies of the respective NBFCs/banks. You must research thoroughly before applying. 

Tenure for gold loans is modified every 6 months. Hence, if the loan amount is approved, complete the monthly/ half-yearly/ annual payments on time. Failing to do so may result in partial or complete loss of your pledged gold, as the lender may recover the sum by selling your jewellery. 

Apart from familiarising yourself with the borrowing provisions to understand how gold loan works, you must know how the lenders determine the actual market price of the mortgaged gold. To know the standard regulations, continue reading. 

Loan amounts are sanctioned based on several criteria that have been listed below:

• Tenure of the loan

• Borrower’s repayment potential

• LTV or Loan to Value ratio

Although the Reserve Bank of India has set the LTV at 75%, many banks and NBFCs offer a margin of 75-77% against the pledged gold. For instance, say the loan representative has determined Rs. 5 Lakhs to be the market value of the mortgaged loan, then the maximum approvable loan amount can be around Rs. 3.85 Lakhs. 

Approval formalities associated with a gold loan are much simplified compared to loan sanction procedures of other secured loans. Moreover, you do not need to worry much while availing one as the interest rates are low, and there are flexible loan repayment options. When trying to understand how gold loan works, you should perform a thorough research of the lenders, and understand your own repayment potential before applying for one.