Gold loan

Gold is one of the most coveted investments, both in India and worldwide. The yellow metal is a household favourite in the Indian subcontinent for its ornamental uses and a trusted investment source. With a massive domestic holding of 24,000 – 25,000 tons, Indian households top the charts of gold reserves globally.

This age-old propensity for the precious metal has led it to be a trusted instrument in India’s loan industry. Many prominent and reliable lenders have started offering online gold loans with hassle-free documentation to boost gold loan popularity. The organised gold loans industry in India today is a mammoth Rs. 4.61 lakh crore, and it’s only poised to grow at an annual rate of 15 per cent.

So, what makes this entire ecosystem of gold loans tick? Let’s peel off the layers of a gold loan and understand how this popular financing method works.

What is a gold loan & what is the process of applying for a gold loan?

A gold loan is a line of credit extended from a lender, usually a bank or NBFC, to a retail borrower, using their gold as collateral. This deposited gold can be in gold biscuits, ornaments, coins or any other form. The precious metal is deposited with the institution against the loan value, which is anywhere between 60% to 75% of the market value of gold deposited as collateral.

This value of a gold loan against gold collateral is arrived at after considering several factors:

• The current market price of gold
• The creditworthiness of the borrower
• The weight of the gold deposited
• Weight of stones and other metals present in the Jewellery

The very fact that the yellow metal enjoys a comfortable market position and is not as volatile as other investments make the process of applying and disbursing a gold loan reasonably simple. There are two ways to apply for a gold loan from a process perspective, an online application and an offline application for the gold loan.

• Applying online the basic details like the address, mobile number are shared beforehand with the NBFC and you are mapped to the nearest branch thus expediting the process, you only need to visit the branch to handover the gold and some necessities.
• In an offline loan, the borrower must carry a necessary ID proof and the gold they wish to deposit. A guarantor or any previous gold certificates is not needed. The NBFC itself ascertains the gold value on the spot, extending a loan and providing a deposit certificate against the collateral.

How is the interest rate for gold loans calculated?

The variables that influence a gold loan’s interest rate are the loan tenure and the principal amount. The creditworthiness of the borrower does not have any bearing on the interest.

The interest rate also differs based on the particular gold loan scheme solicited. Special schemes are curated for business borrowers, small-time borrowers, borrowers for personal expenses and even women borrowers.

Almost all banks and NBFCs that offer gold loans also provide a handy gold loan interest rate calculator on their websites.

To know the estimated monthly instalment for a specific loan amount under any particular scheme, you may simply enter the variables, including loan value and tenure to get values for monthly installments. To arrive at the total interest levied, simply subtract the principal borrowed from all the installments to arrive at the total payable interest you have to shell out.

Most gold loan lenders levy an interest rate of anywhere between 12%-24% p.a., based on the loan’s nature. Muthoot FinCorp is a leading gold loan lender in India, helping you meet all your major financial goals with ease. Muthoot gold loan interest rates are an apt reflection of the interest levied by many leading lenders in the market.

Final Words

Gold loans have been a tremendous success in South India, and are slowly but surely seeping into central and north India as a trusted financial instrument. As long as the yellow metal is a permanent feature in household lockers, the Indian gold loan market will continue to spearhead short-term and long-term credit requirements of retail borrowers in India.

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