Last year, the Reserve Bank of India (RBI) eased gold lending regulations, authorising lenders to lend up to 90% of the amount of the gold pledged. Banks will currently lend up to 75% of the amount of gold jewellery and ornaments. The LTV (loan to value ratio) relief will be valid on loans taken out until March 31, 2021. Current loans will be subject to the eased LTV guidelines. Since the loan balance is determined at the time of application, existing borrowers can contact the lender and reapply their loans under the revised terms if they wish to. Following the outbreak of the pandemic, the market for gold loans has risen dramatically, with a growing number of borrowers preferring for gold loans. The interest rates on these loans are cheaper than on personal loans since they are secured. To prevent additional penalties and the possible loss of a valuable asset, ensure the loan sum approved is sufficient to satisfy the financing requirements, compare your options through different lenders to find a loan with the right repayment terms, and have a detailed repayment schedule before applying for a gold loan.
Things to know before applying for a gold loan
- When you apply for a gold loan, you must carry your gold ornaments with you in order to pledge it as a security against your loan.
- When applying for a gold loan, you will need Aadhaar or PAN as proof of identity, utility bills as a proof of address, income proof and passport size photographs.
- Banks have different minimum and maximum loan amounts. Similarly, gold loan terms range from three to 36 months depending on the bank.
- Most of the banks charge up to 1.5 percent of the loan amount for processing fees plus GST, which you must pay before the loan is allocated. In addition to processing fees, banks charge valuation fees.
- Your first option should be a public sector bank because interest rates are cheaper than that of private sector banks and non-banking financial companies (NBFCs).
- The purity of the gold is examined by the lenders. The market price of your gold ornaments is then determined based on the gold rate on the day of the loan approval. You will get up to 90% of the value of the gold vowed. When you pledge gold ornaments, the lender only considers the gold portions when measuring the value; other metals, stones, and gems are not included. Foreclosure is authorized by banks. When an account is closed within three months, banks charge a nominal closure fee of up to 2% plus GST as foreclosure charges.
- If you don't pay back the loan on or before the deadline, the bank will deliver you an alert and charge you a late payment fee as a penalty. Over and above the applicable rate of interest, most banks impose penalty fees of up to 2% a year. If you do not pay back the loan despite repeated reminders, the bank can acquire and sell your pledged gold to reclaim the unpaid balance. Your credit history will suffer as a result of this.
How to claim tax benefits on gold loan?
- Under the guidelines of the Income Tax Act of 1961, you can receive tax benefits on loans such as a home loan. For a gold loan, though, this is not the truth. The tax incentives you will get from this loan choice are determined by how you use the loan amount. You will get tax benefits on your gold loan in a variety of ways, such as:
- If you need to cover major maintenance costs or make upgrades to meet shifting standards of your home, the necessary funds could be important. To cover these costs, you can take out a loan on your gold assets and thereby benefit from tax relief on gold loans. You can claim a tax benefit on a loan for home renovation under Section 80C of the Income Tax Act of 1961. This exemption is limited to Rs. 1.5 lakh a year and relates to the principal amount.
- If the property you purchase or establish is self-occupied, you can assert a tax deduction of up to Rs. 2 lakh in a financial year under Section 24 of the Income Tax Act, 1961. If the residential property is rented, you can deduct the whole amount of interest accrued in the fiscal year from your tax liability.
- You can also use a gold loan to get tax advantages on assets other than property investment. That being said, when you sell those securities within the fiscal year, the stated advantage falls in. You must add the interest charged on such a loan as part of the worth of acquisition to qualify for this advantage. You can reduce the capital gains tax that you have to pay by doing so.
Factors that impact gold loan interest rates
To select the best Gold Loan interest rates for you, you must first understand the factors that influence gold loan rates.
Loan amount: As you might be aware, the loan amount is determined by the total gold value pledged by you. The gold loan amount is usually between 65 and 90 percent of the total gold value. The higher the loan amount, the higher the interest rate on a gold loan. Many lenders set interest rates based on the value of gold pledged by you the bank.
Purity of the gold: The maximum gold loan amount is determined by the quantity and nature of the gold articles. A bank-appointed valuer inspects the gold articles for consistency and quantity. Most banks will not recognise gold ornaments that are less than 18 karats.
Monthly income: Your repayment potential is calculated by your monthly income. If you don't have any financial debt in the form of credit card or loan EMIs, a higher monthly salary may improve your repayment potential. Low gold loan interest rates can be obtained with a higher monthly income. Because of your high repayment potential, lenders will feel secure that you will be eligible to reimburse the loan on deadline. Most banks do not require borrowers to have proof of income. Banks, on the other hand, choose to loan to borrowers who have a steady income stream.
Credit score: One of the most significant variables that affects your interest rates is your credit rating. A high credit score means that an individual has a positive repayment history and is creditworthy. Credit score determines an applicant's eligibility for unsecured loans, while credit score influences interest rates on gold loans. As a result, borrowers with strong credit scores of 700 or higher will get better interest rates than borrowers with poor credit ratings. Aside from that, keep in mind that when determining gold loan interest rates, lenders owe a spread, mark-up, and margin on the RLLR and MCLR.
Gold Loan Interest Rates
We've curated here a compilation of gold loan interest rates presently being provided by some major banks for Rs 5 lakh gold loans taken for a three-year period to help you make knowledgeable choices.
|Sr No.||Banks||ROI in % p.a.|
|1||Punjab & Sind Bank||7|
|2||Bank of India||7.35|
|3||State Bank of India||7.5|
|9||Punjab National Bank||8.75|
|11||Jammu & Kashmir Bank||8.85|
|12||Bank of Baroda||9|
|14||Indian Overseas Bank||9.25|
|17||Karur Vysya Bank||10.1|
|19||South Indian Bank||11.95|
|Source: Bank Websites|