Gold loans are an alternative source of borrowing for retail customers who are not able to get credit card and other such personal loans. Depending on the gold value as per market rates, borrowers are able to secure up to 75% of gold value.
Also, at a current time, when prices of gold have been surging in the back drop of geo-political crisis between the US and China and economic fall-out due to coronavirus, the loan product category becomes a more lucrative option as more funds can now be mobilized through the route at comparatively competitive rates.
Further as the RBI has cut policy rate to their lowest ever of 4%, interest rate on gold loan which is generally lower than personal loan interest rate being backed by the collateral i.e. gold has also been cut down by 40 basis points. 1 basis point is one-hundredth of a percentage point.
LTV during the course of the lockdown due to coronavirus on gold loan has also increased
Notably the spike in gold rates, which in May touched new highs of Rs. 48,000 per 10gm, provides a delight to gold loan customers. Furthermore during the course of the lockdown the loan to value amount that gold loan borrowers are able to secure has increased from Rs. 2875 per gram on March 24 to Rs. 3197 per gram on June 10. This is as per the data from the Association of Gold Loan Companies (AGLOC) India.
Interest rate charged by PSBs is the lowest
SBI's personal gold loan offering charges the lowest rate of 7.75% per cent per annum that means for loan amount of Rs. 1,00,000 interest that would be charged is Rs. 7750. There is additional processing fee of 0.5% on the loan amount plus GST is charged on this fee.
Some of the lenders also charged gold appraiser while it is not the case with other gold financing companies. In times of financial distress, it is the quickest way to monetize one's gold possession.
Some of the banks may also require you to maintain a bank account for the disbursement of the loan amount, while NBFCs do not demand such a criterion.
Point to note when availing gold loan
Though the quickest means of getting finance, gold loans are generally short term loans, hence one needs to carefully assess one's repayment capacity before taking such a loan.
Furthermore, as per a media report sources from the RBI and government suggest that PSU lenders are being nudged to extend gold loans to retail customers and that too at rates in line with auto and home loans thus making the category of loan more affordable.