Gold Loan: What Should You Know? — OroPocket Blog
In India, gold is much more than a metal. People have several emotions attached to it. No wonder India is the largest importer of gold globally. If one were to look at imports of gold over the year, it has gone up consistently. The gold import to India between the six months of April to September 2021 was valued at $24 billion, which is a massive jump of 252% compared to the corresponding figure of the last year.
According to an estimate by the Managing Director of the World Gold Council, Indian households have accumulated about 25,000 tons of gold over some time. This figure itself is an indicator of the love and craze Indians have for gold.
What is a Gold Loan?
Wearing gold not only makes people feel good about themselves, buying and investing in it gives a feeling of having arrived in life. In case of any financial hardships, one can take a secured loan against it and get over the crisis.
This loan against gold is called a gold loan. It allows borrowers to pledge their gold assets. Consumers can engage their 18–24 KT gold articles as collateral and get a secured loan against it up to a limit of 80% of the current market value and quality of gold.
How Does a Gold Loan Work?
The most important aspect of the gold loan process is the evaluation of pledged jewelry in terms of purity and weight. Another part of the gold loan process is to verify the ownership of the gold jewelry to avoid legal issues later on. Hence, verification of the borrower’s identity becomes very critical before sanctioning the loan.
Once the gold quality, ownership, and borrower’s identity are confirmed, the lender sets a credit limit against that. This limit is called ‘Loan to Value’ (LTV). Like bank overdraft limit, LTV is sanctioned up to a certain percentage (usually 75%) of the market value of the pledged gold ornaments. Once this LTV is set, the customers can withdraw this amount whenever required.
For replaying the gold loan, the borrower has the freedom to make monthly payments or a lump sum payment at the time of maturity. On maturity, the customer can repay the outstanding and close the account or extend the tenure by pledging the jewelry once again at the current LTV. There is no limit on the number of times the gold can be pledged to get a loan. That means that the same gold can be rolled over for as long as needed.
Most banks levy some penalty in case of the borrower makes an early payment before the loan’s maturity. However, some banks and NBFCs allow the borrowers to make partial payments or early repayments without penalties.
Benefits of Gold Loan
Originally published at https://blog.oropocket.com on November 16, 2021.
