Gold loans have boosted the credit system of our country exponentially. Since other types of unsecured loans present risks for the lender, they have a high rate of interest. Unsecured loans cannot guarantee repayment and therefore can prove to be a liability for financial institutions. Gold loans are secured loans because repayment is guaranteed. Even if the borrower is unable to pay the dues on time, the gold left as collateral can be sold-off to reclaim the loss incurred. An individual must review the Gold Loan Eligibility criteria before deciding. Every financial institution has its policy regarding gold loan schemes.
Here are HDB bank's policies for a gold loan:
- An interest rate of 7.0% at a rate of 75% loan-to-value ratio. An amount of Rs. 5,121 per gram (purity variation from 18-carat to 24-carat).
- A person needs to be over the age of 18-years to apply and the maximum age category is 75-years.
- A maximum loan amount limit of Rs. 2,000,000 until a maximum period of up to 36-months.
The same question that arises for each individual is how to select the right lender to gain maximum benefit? Well, it should be understood that to reap maximum profit out of a gold loan, a person must choose a plan that will not prove to be harmful to them instead. Certain things must be kept in mind while selecting a gold loan plan. Firstly, the concept of the loan-to-value ratio must be understood. The loan-to-value ratio refers to the amount that you will receive as a loan in comparison to the actual value of the gold articles submitted as security. If the original value of the articles is Rs. 50,000 and the loan-to-value ratio is 75% then the amount that will be given by the lender as a loan would be Rs. 37,500 only. While applying for a gold loan, it is logical to find a lender providing the maximum value-to-loan ratio.
The second thing to consider while applying would be the rate of interest offered. The rate of interest is an extra charge which has to be paid along with the actual loan amount. Since gold loans are secured, the rate of interest charged by lenders is comparatively lower. Choosing a bank that offers a low-interest rate is advisable. HDB Gold Loan also provides lowest interest rate to its customers. Another thing to be kept in mind is the duration of the loan. If you require long-term finances then a longer period should be selected whereas if you need funds for short-term purposes then a short period should be taken into consideration.
Long-term loans generally have a higher rate of interest as compared to short-term loans. Suppose that an individual named A avails for a gold loan of Rs. 1,000,000 and the tenure period is 5 years and another person named B also goes for the same amount but 3 years. Even though Mr. A could have a higher rate of interest than Mr. B, he has more time to pay his debt. In this case, Mr. B is at risk as he has comparatively less time to clear his loan. The last detail you should consider is the quality of your gold. The highest quality gold materials (24-carat) would in turn provide the highest possible value. There is specific criteria that needs to be followed before getting a gold loan.
Here is the eligibility criteria:
Any citizen who is over the age of 18- years to an age of 75-years can apply for a gold loan. The required documents are; address proof, Identity proof, and two passport size photographs. If you are applying for an agriculture loan of over Rs. 100,000 then you must deposit proof of land-holding.
Conclusion: Gold loans are provided on a collateral basis. If you wish to utilize your gold articles to the fullest, choosing the right lender is of utmost importance.