Gold loan is a type of secured finance where you can take a loan against your gold. The loan amount is based on the current market value of the amount of gold you are pledging. It is quick and straightforward, doesn’t require too much paperwork, and comes with flexible repayment options. You can pledge gold ornaments, gold coins and other kinds of gold trinkets for the loan.
There are no strict eligibility criteria for gold loans – it doesn’t matter whether you are a salaried employee, self-employed, businessman, or a homemaker. Since the loan is based on the gold you pledge, anyone is eligible to avail this loan.
Also, there is no restriction on how you utilize the gold loan amount – it can be for a medical emergency, to start a new business, to fund your kids’ education, to take up house construction, or more. This flexibility allows gold loans, a popular choice among rural and semi-urban borrowers.
Since the gold serves as collateral for the loan, the interest rate is typically lower than other loans, especially personal loans. So a gold loan offers quick access to funds similar to a personal loan, but with lower interest rates.
Snapshot Of Gold Loans In The Current Market
| Gold Loan Interest Rates | 7% – 13% |
| Loan Amount | Up to 90% of the gold value (loans of up to Rs.1 crore can be availed with ICICI Bank Gold Loans) |
| Gold Items that can be pledged | Gold jewellery, bars & coins |
| Loan Tenure | 7 days – 36 months |
| Processing Fees | 0.25% – 2% of the loan value |
| Repayment Options | EMI payment or Bullet Payment plans |
Gold Loan Interest Rates Comparison 2022
| Name of the Bank | Interest Rate | Loan Amount |
| Axis Bank Gold Loan | 13.50% p.a.to 16.95% p.a. | Rs.25,001 to Rs.25 lakh |
| HDFC Gold Loan | 11% p.a. to 16% p.a. | Rs.10,000 onwards |
| Canara Bank Gold Loan | 7.35% p.a. | Rs.5,000 to Rs.35 lakh |
| Muthoot Gold Loan | 12% p.a. to 26% p.a. | Rs.1,500 onwards |
| SBI Gold Loan | 7.00% p.a. onwards | Rs.20,000 to Rs.50 lakh |
| Kotak Mahindra Gold Loan | 10.00% p.a. – 17.00% p.a. | Rs.20,000 to Rs.1.5 crore |
| IndusInd Bank Gold Loan | 11.50% p.a. – 16.00% p.a. | Up to Rs.10 lakh |
| Manappuram Gold Loan | 9.90% p.a. to 24.00% p.a. | As per the requirement of the scheme |
| Bank of Maharashtra Gold Loan | 7.10% p.a. | Up to Rs.20 lakh |
| PNB Gold Loan | 7.70% p.a. to 8.75% p.a. | Rs.25,000 to Rs.10 lakh |
| Bank of Baroda Gold Loan | 9.00% p.a. – 9.15% p.a. | Up to Rs.25 lakh |
5 Reasons Why Gold Loans Are Better Than Personal Loans
1. Documentation and Processing Time – Gold loans are generally dispersed instantly, or within a few hours. The lender may take time to verify the authenticity of the gold items.
2. Cost of Borrowing – Unlike personal loans or other term loans, gold loans do not come with high processing charges. They usually have a fixed processing fee that is very nominal.
3. Loan Term – Gold loans are generally short-term loans; usually up to 1 year, which is extended upon request. Personal loans are offered for up to 7 years.
4. Repayment Options – Gold loans are either paid as EMIs or a bullet payment at the end of the term, along with the interest. Personal loans are repaid in EMIs only, with very few lenders allowing partial prepayments.
5. Interest Rates – Since gold loans are backed by your gold items, the interest rate is relatively lower. It starts at 7-8%. Personal loans are unsecured loans and hence have a higher interest rate, starting at 11% p.a.
6. No Prepayment penalty – There are no prepayment penalties, so you can repay the gold loan in full whenever you have the necessary funds.
7. Your gold is safe with the lender – You don’t have to worry about the physical security of your gold ornaments because lenders keep them in a secure vault until you repay the loan and reclaim the gold.
When Should You Apply For A Gold Loan?
A gold loan is a good option if you need money for urgent personal expenses and want to repay the loan quickly.
There are no restrictions on how and what you can spend the loan money on, so these expenses could include planning a wedding, paying for a child’s education, covering unexpected medical costs, remodeling your home, or even taking a vacation.
It’s also important to have a solid track record of making payments when applying for a gold loan.
To avoid losing your family’s jewelry and harming your credit score, you must be prepared to repay the loan in full by the due date. This will make it difficult to obtain loans in the future.
What Are The Repayment Options Available To Repay My Gold Loan?
A gold loan is not like a traditional installment loan, where you pay an EMI monthly. There are various repayment options for gold loans –
1. Pay Interest As An EMI And Principal At Maturity
Regularly paying interest helps you reduce the overall interest burden on your gold loan. So, when the loan matures, you simply pay the principal amount in one lump sum and get your gold back.
Because you are only paying the interest portion, your monthly EMI will be low and manageable. This repayment method is appropriate for new businesses with limited cash flow.
2. Interest And Principal Repayments On A Regular Basis
This is not a fixed EMI payment plan, but you agree to make regular payments toward the outstanding interest and principal. Some people prefer to repay their debts in lump sums at regular intervals.
That also works well. The key here is to ensure that you are servicing the loan on a regular basis to avoid large interest accumulations.
3. Option For Bullet Repayment
This is by far the most popular method of repayment for gold loans. At the end of the loan term, you repay the interest and principle in one lump sum.
As a result, there are no monthly payments required. You can simply repay the loan and collect your gold from the bank at the same time.
4. Standard EMI Scheme With Interest and Principal Components
This repayment plan is similar to any other installment loan repayment plan.
You pay a fixed EMI every month for a set number of months, and your loan is paid off.
Your gold is returned to you once the loan is completed.
To Sum It All Up
The benefits of gold loans for personal emergencies are clear-cut. They’re quick, hassle-free, and come with a low interest rate. If you need money for an urgent personal expense, a gold loan is a great option.
