Gold loans have gained considerable popularity owing to their straightforward accessibility and the substantial worth associated with gold in India. Nevertheless, the growing demand for these loans has concurrently led to an uptick in fraudulent schemes. The escalation in gold prices has rendered gold loans an attractive solution for individuals in need of immediate financial assistance during emergencies.

Regrettably, this heightened interest has also resulted in a troubling rise in gold loan fraud, with con artists exploiting vulnerable borrowers, thereby causing them significant distress. It is imperative for borrowers to be aware of the different facets of gold loan fraud to safeguard their valuable assets.

Types of Gold Loan Frauds

Fake Gold Loans

One of the most common types of fraud is the issuance of loans against fake gold. Fraudsters may present counterfeit or substandard gold jewellery to secure loans from unsuspecting lenders. These scams often involve collusion between borrowers and dishonest appraisers who falsely certify the gold’s authenticity.

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Misappropriation and Identity Theft

Another prevalent form of fraud involves the misappropriation of gold that has been pledged as collateral. In some cases, gold loan companies or employees may replace genuine gold with fake gold after the loan is sanctioned, or they may even sell the pledged gold without the borrower’s knowledge.

Adhil Shetty, CEO of Bankbazaar.com, says, “Identity theft is a growing concern, and gold loans are no exception. Fraudsters may use stolen or forged identity documents to apply for gold loans in someone else’s name. In some cases, victims only discover the fraud when they receive a loan recovery notice for a loan they never took.”

Fake Gold Loan Companies

There has been a surge in fraudulent companies offering gold loans without proper authorization or registration. These entities lure customers with attractive terms and then either disappear with the gold or charge exorbitant interest rates, making it impossible for borrowers to reclaim their assets.

Online Gold Loan Frauds

With the rise of digital lending platforms, online gold loan frauds have also increased. Scammers create fake websites or apps mimicking legitimate gold loan companies, tricking customers into providing personal information or even pledging their gold online.

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How to Safeguard Against Gold Loan Frauds

1. Verify the Credibility of the Lender: Before pledging your gold, ensure that the lender is a reputable and registered financial institution. Look for certifications, licences, and customer reviews to verify the credibility of the lender.

2. Insist on In-Person Valuation: Always opt for in-person valuation of your gold by a trusted appraiser. Avoid any lender who insists on online or remote appraisal of your gold, as this increases the risk of fraud.

3. Secure Your Identity: Protect your identity documents and personal information. If you suspect that your identity has been compromised, report it immediately to the authorities to prevent unauthorised gold loan applications in your name.

4. Keep a Record of Transactions: Maintain detailed records of all transactions related to your gold loan, including appraisal certificates, loan agreements, and receipts. These documents can be crucial in case of any disputes or fraud investigations.

5. Be Wary of Unsolicited Offers: Be cautious of unsolicited offers for gold loans, especially from unknown entities. Fraudsters often use high-pressure tactics to convince you to pledge your gold quickly, without proper verification.

The RBI has mandated that all Non-Banking Financial Companies (NBFCs) engaged in gold loans must adhere to strict KYC (Know Your Customer) norms and regularly audit their gold loan portfolios to detect and prevent fraud. It is crucial to notify the relevant financial institution and law enforcement authorities about any suspicious activities or potential fraud. Timely reporting can aid in mitigating additional losses.