Gold Loan: Average customers now find it difficult to buy gold due to the substantial increase in price in recent months. But this increase in value has given borrowers a chance to use gold as collateral to get bigger loans. During the course of the last year, the loan-to-value (LTV) ratio for gold loans has climbed by almost 20%. The LTV for gold has increased to almost ₹5000 per gramme as of late May, according to data from the Association of Gold Loan Companies (AGLOC) India.
Increased Loan Amounts with Higher Gold Prices
A year ago, a sovereign (8 grams) of 22-carat gold would fetch a loan amount of around ₹33300. Today, that same amount of gold can secure about ₹40000. AGLOC represents leading gold loan non-banking finance companies (NBFCs) such as Muthoot Finance and Manappuram Finance.
Understanding Loan-to-Value (LTV)
LTV ratios (loan-to-value) that banks and NBFCs will lend on are up to 75%. Different lenders have different interest rates and ways of calculating the loan amount.
Growth of Gold Loan NBFCs
Muthoot Finance reported the highest ever gold loan advances in the first nine months of fiscal 2024, amounting to ₹120856 crore, with disbursals to new customers reaching ₹11920 crore.
Interest Rates and Loan Options
When it comes to gold loans, private sector banks usually offer higher interest rates than public sector banks. With average interest rates of around 12% annually, NBFCs frequently provide gold loans at rates greater than those of banks. For example, SBI levies annual fees on personal gold loans between 8.75% and 9.9%, whilst HDFC Bank and ICICI Bank charge between 9% and 17.6% and 9% and 18%, respectively. Interestingly, banks do not need evidence of income for these loans; however, the borrower must have a bank account. Since NBFCs are exempt from this regulation, gold loans are a quick source of capital in times of need.
Banks offer various repayment options, including:
- Interest-Only Payments: Pay just the interest every month and settle the principal at the end of the loan tenure.
- Regular EMI: Both interest and principal are paid through monthly installments.
- Partial Payments: Flexible payments of both interest and principal.
- Bullet Payment: Settle the entire amount, including interest and principal, at the end of the loan tenure.
Processing and Documentation Charges
Private banks frequently charge more than government-owned banks for processing and paperwork fees. Additionally, some banks may charge applicants for independent gold appraiser fees; others may not.
Steps to Take a Loan Against Gold
- Assess Gold Value: Visit a lender or a gold loan company to appraise your gold’s value.
- Choose Lender: Select a bank or NBFC that offers favorable interest rates and terms.
- Submit Documents: Provide necessary documents such as ID proof, address proof, and any required forms.
- Loan Processing: The lender assesses the gold’s value and processes the loan application.
- Receive Loan Amount: Upon approval, receive the loan amount as per the agreed LTV ratio.
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