Gold loans available from banks and NBFCs are growing at 8.45% per annum. ICRA has estimated the distribution of gold loans worth Rs 10 lakh crore in the current financial year 2024-25. The credit rating agency estimated that it would reach Rs 15 lakh crore in the next three years.
AM Karthik, Joint Head of Financial Sector Ratings Group at ICRA, said, “The Reserve Bank has tightened rules for unsecured loans like personal loans. At the same time, due to the rise in gold prices, the trend of taking gold loans will increase in 2023-2024. Its pace is expected to accelerate in the next financial year, i.e. 2024-25.
Gold loans have increased by 25% annually over the last three financial years
According to the ICRA report, 83% of the gold loan market was dominated by the top 4 companies in 2023-24. The organized gold loan market is expected to grow at 25% annually between 2019-20 and 2023-24. During this period, the gold loan portfolio of banks grew by 26% and the gold loan portfolio of NBFCs grew by 18% annually. During the same period, agricultural loans taken from banks against jewelry collateral increased by 26% and retail gold loans increased by 32%.
Keep in mind before taking a gold loan
It is important to consider several aspects before taking out a gold loan. These include the interest rate, loan-to-value ratio, processing fees, and loan repayment terms. Above all, the security of your promised gold is of utmost importance. In such a situation, you need to choose a reputed lender (i.e. gold loan company) who has a secure warehouse or locker or an insured safe.
The gold loan is a secured loan. Gold collateral reduces the financial risk of the lender. Gold loan processing takes comparatively less time. It doesn’t require a lot of paperwork. The value of your investment can increase when the price of gold increases, making a gold loan a profitable deal.
How long can you take out a loan?
Typically, you have 3 to 2 years to repay the loan. But it depends on the bank and NBFC. Like HDFC Bank, it provides loans from 3 months to two years. SBI gives up to three years. Muthoot and Manapuram provide loans for longer periods.
What is the maximum gold loan amount that can be taken?
At most, you will get a loan of Rs 90,000 against gold worth Rs 1 lakh. SBI provides gold loan up to Rs 50 lakh. They also give a loan of Rs 1500. Since these companies only give gold loans, there is no maximum limit here.
Are any documents required for a gold loan?
According to the SBI website, you will need to provide a PAN card, Aadhar and 2 passport formats. Apart from this, proof of address must also be provided.
Does this take your credit score into account?
Gold loan is a type of secured loan. This is why your credit score doesn’t matter. You get this loan easily and at a lower interest rate than a personal loan.
How to repay the loan?
Banks or NBFCs give you many options to repay the loan amount and interest, you can choose any one as per your requirement. You can pay in Equated Monthly Installments (EMI). Apart from this, you can pay the interest during the lump sum payment of principal. This is called bullet repayment, and under this, banks charge interest on a monthly basis.
What will happen to your gold if you don’t repay the loan?
If you fail to repay the loan on time, the loan company has the right to sell your gold. Apart from this, if the price of gold falls, the lender may also ask you to pledge additional gold. Taking a gold loan is only appropriate when you need money for a short period of time. It wouldn’t be fair not to use them for big expenses like buying a house.