The gold price is touching a record high in the domestic market, and in the current scenario, gold glitters as a ray of hope for individuals as well as many small businesses. Gold loan is a viable option for people to fulfill an immediate need.
Gold prices are on the rise, and so is the demand for gold loans. The gold price is touching a record high in the domestic market, and in the current scenario, gold glitters as a ray of hope for individuals as well as many small businesses. Hence, taking advantage of this opportunity, banks and lenders have started reaching out to existing and prospective customers with the gold loan proposition.
Praveen Kutty, Head- Retail & SME Banking, DCB Bank, said, “Gold loan is a viable option for people to fulfill an immediate need. An increase in the value of gold helps customers raise a better loan amount against the ornaments.” According to banks, there has been a lot of demand coming from traders, shopkeepers, and small businessmen that are opting for gold loans to restart their operations after the lockdown. Gold loans are short tenure loans essentially used as working capital for small businesses.
With the nationwide lockdown impacting the businesses, many of them do not have sufficient collateral to provide against bank loans, they prefer to opt for gold loans. Gold loans are the quickest and easy form of working capital that one can avail and kickstart a business. George Alexander Muthoot, MD, Muthoot Finance says, “When gold is seen as a commodity whose price is going up, people opt for gold loans, as it is one of the easy products to collateralize and avail bridge finance for their immediate requirement.”
The rise in gold loan price is also good news for existing gold loan borrowers. As the market value of gold increases, existing customers can raise a better loan amount against their deposits which, however, depends on a case-by-case basis. Alexander of Muthoot Finance explains, “If the prices of gold rise, the collateral value of loans given to the customers goes up and the strength of the collateral will go up.” Hence, borrowers who would want maximum value for their gold as loan, can borrow a higher amount from their lender. Among initiatives, Canara Bank started a gold loan vertical, ICICI Home Finance started offering gold loans through 70 branches, Muthoot Finance introduced ‘Loan at Home’ and ‘Gold Unlocker’ a gold credit line wherein customers can avail credit line against their idle gold. The company is also offering 5 per cent cashback on online interest remittance to encourage people to use digital channels for repayment of interest and principal.
The current interest rate of gold loan offered by SBI is 7.50 per cent, HDFC bank 10.05 per cent, IIFL 9.24 per cent, ICICI bank 10 per cent, Canara bank 7.65 per cent, whereas Muthoot Finance offers 12 per cent, and Manappuram 12 per cent.
If you are planning to take a fresh gold loan, here are few things to keep in mind;
If you are planning to opt for a gold loan first find out should you opt for it or not. Alexander of Muthoot Finance says, “Gold loan is not a long term loan, it is a short-tenure loan ranging from 3 to 5 months. Hence, borrowers who require money to bridge their finances till they get cash flow straight or till they are able to get a long-term loan from banks, etc. should opt for gold loans.”
Most banks offer loans against gold ranging from Rs 10,000 to Rs 20 lakhs. The loan amount is usually up to 75 per cent of the appraised gold value. Depending on the purity of gold, the valuation and the loan amount will be set. Know that, in case of a loan against jewelry, the lender won’t consider the value of gems and stones.
Keep in mind, many banks do not accept gold bars and biscuits for a loan against gold, however, specially minted coins issued by the same bank could be an exception. Some banks/lenders also accept coins up to 50 grams with a purity of 99.99 per cent. With most lenders, you can choose repayment options such as EMI or service interest on monthly basis or bullet repayments. Alternatively, you can also avail of an overdraft facility and pay interest only on the utilized loan amount. Note that, other than processing fees, and valuation charges, some banks also pre-payment charges.