Did you know that 10% of the world’s gold stock is locked up in the safes and lockers of Indian families? That’s 15,000 tonnes of precious metal, most of which is owned as jewellery, while nearly 27% is in the form of coins and bars. That’s a lot of gold. You would think it’s a lot of money as well, but unfortunately, much of this gold is lying idle in lockers.
It’s only during financial emergencies that families think of pledging it, usually to a neighbourhood pawnshop, for quick cash. The good news is that banks are now making it easy to take a loan against gold. It makes pledging jewellery safer than leaving it at the pawnshop; chances are that you’ll also get better loan terms and conditions.
| "It’s a good idea to raise money by keeping gold as collateral if one’s investment horizon in the metal is long" — Zankhana Shah, Financial Planner |
| | Personal loan | Loan against gold |
| Interest rates | 18-24% | 13-17% |
| Documentation | Income proof mandatory | Income proof not necessary |
| Repayment | Through EMI | Non-EMI options available |
Besides public sector banks such as Canara Bank, Allahabad Bank, State Bank of Travancore, State Bank of Hyderabad and Syndicate Bank, private sector banks such as ICICI Bank, HDFC Bank, Federal Bank and Karur Vysya Bank too are offering loans against gold. Unlike most other loans, which involve long waits and tedious paper work, loans against gold require relatively less documentation (often without income proof), are disbursed faster (30 minutes to 4 hours) and carry lower interest rates.
The bank empanels valuers who check the jewellery for purity, content and weight of gold. The jewellery is then assigned a value, which is usually linked to the market price. “The market price is the average of the last two months’ rate per gram,” says Kanwar Vivek, general manager, ICICI Bank.
The bank gives a loan of 70-80% of the value of gold pledged and the loan tenure ranges from 1 to 3 years. The minimum loan amount is Rs 5,000 and the maximum is Rs 15 lakh. The rate of interest is fixed and depending on the loan tenure, amount, relationship with the bank and the risk profile of the borrower, it can be anything from 13% to 17%.
The banks also offer an overdraft facility against gold jewellery. “A borrower can use the money as per his requirements. The facility is for 12 months after which it is renewed annually at the option of the customer,” says Biju Pillai, head, personal loans, gold loans and loans against shares, HDFC Bank. The good part is that the interest charged in overdraft facility is on the amount utilised daily and is debited at the end of every month.
In case of term loans too, most banks ask for repayment at maturity instead of paying back every month along with interest. According to financial planners, gold as collateral can fetch a bigger loan than any other pledged asset.
Says Zankhana Shah, Mumbaibased financial planner: “It is advisable to take loans against gold as you can avail of a higher percentage of gold value unlike options like shares and property. But go for it only when you want to hold gold in the long term.” Also, factor in your repayment capacity before availing of this golden opportunity.
