Sell Gold or Take a Gold Loan? Which is Better?

Do you know that India has about 10% share in world’s total gold stock? Indian women love buying gold ornaments for themselves and their loved ones. Buying and gifting gold jewellery for daughter’s or sister’s wedding, Dhanteras, Diwali, Akshaya Tritiya, the birth of a newborn, and other pious occasions is a very old tradition in India which is still followed by new generation wholeheartedly. One thing which is new in the Gold sector is – Gold Loan!

The concept of Gold Loan (also referred as Loan Against Gold) is very old in India, however, it started growing at a remarkable pace since 2011. According to a report published in NOVONOUS, the organized Gold Loan segment grew around 60% in FY 2011-12, and 45% in FY 2012-13. Due to decline in the prices of gold internationally, the growth reduced in FY 2013-14, however, the market is catching up again and expected to grow at CAGR 15% year-on-year during next 5 years.

To get this form of financing, the borrower pledges his/ her gold (jewellery, coins, bars, coins, etc.) to a bank or NBFC, who then evaluates its worth and provides financing to the borrower. Gold Loan can be utilized to fulfill your instant short-term personal as well as business financial needs. It is one of the quickest ways to get funds with minimal documentation.

If you’re still not convinced to avail this sort of financing, here are some benefits and features of Gold Loan to make the gold lying idle in your locker work for you:

Features and Benefits of a Gold Loan

• Instant fund disbursal: You can get funds quickly against your gold items, and repay as per your convenience. The processing is done within hours (depending on case to case).
• Secure handling of collateral: Any gold item pledged as collateral to the lender is kept safely in their locker. No need to worry about your gold’s safety.
• Competitive rate of interest: As obtained against an asset (gold), this secured financing comes at competitive interest rates. The interest rates vary from lender to lender on the basis of your gold’s value and type of loan (Term Loan, Overdraft or EMI based). At present, the interest rates are between 9%-15%.
• Facility to avail smaller loan amount: You can avail loans starting from thousands. There is no cap on the upper loan amount limit.
• 60-75% LTV (Loan to Value): The LTV of Gold Loan varies from bank to bank, but typically it ranges between 60-75% of the value of gold pledged by you.
• Flexible tenure: The tenure is very flexible for these loans and usually ranges between a few days to 5 years, depending on your loan amount and repayment capability.
• The purposes for which you can obtain a Gold Loan: The loan amount can be used for any business/agricultural/personal purposes such as education, wedding, business expansion, etc. Ideally you should not use it for purchasing land, gold coins, jewels, or other speculative purposes.
• Minimal processing charges: The processing charges vary between 0-1% of the loan amount.
• Facility for renewal: Your Gold Loan can be renewed after paying a negligible renewal processing fee.
• Minimal documentation: For availing a Gold Loan, you need to submit minimal documents along with the application, such as:
• Passport size photographs.
• ID proof: Passport/ Driving License/ Voter’s ID Card/ Ration Card/ Aadhaar Card/ Form 60/61 (any one document).
• Address Proof: Passport/ Driving License/ Voter’s ID Card/ Ration Card/ Aadhaar Card/ Registered Lease Agreement with last 3 months’ utility bills in the landlord’s name (any one document).
• Proof of land holding (if loan is required for agriculture purpose and the amount is more).

If you are in need of immediate short-term finance, it’s time to make use of gold lying idle in your lockers and take a loan against it. However, it’s important to keep in mind that Gold Loan is generally a short-term loan, hence, borrow it only if you are 100% sure you can repay the amount shortly, else, your pledged gold may be forfeited or auctioned by the lender to recover their amount.