Gold is one of the most coveted investments in India and across the world. The yellow metal is a household favorite in the Indian subcontinent for its decorative uses and a reliable investment source. With huge domestic holdings of 24,000 – 25,000 tonnes, Indian households top the charts for gold reserves globally.
This age-old penchant for the precious metal has made it a reliable tool in India’s loan industry. Many leading and trusted lenders have started offering online gold loans with hassle free documentation to increase the popularity of gold loans. Today the organized gold loan industry in India is a huge Rs. 4.61 lakh crore, and it is poised to grow at an annual rate of only 15 per cent.
So, what makes up this entire ecosystem of gold loans? Let us peel away the layers of gold loan and understand how this popular financing method works.
What is Gold Loan and what is the process to apply for Gold Loan?
A gold loan is a line of credit, provided by a lender, usually a bank or NBFC, to a retail borrower, using their gold as collateral. This deposited gold can be in the form of gold biscuits, jewellery, coins or any other form. The precious metal is deposited with the institution in exchange for the loan value, which is anywhere between 60% to 75% of the market value of the gold deposited as collateral.
This value of Gold Loan Against Gold Collateral is arrived at after considering several factors:
- current market price of gold
- credit of the borrower
- weight of gold deposited
- The weight of stones and other metals in jewelry
The fact that the yellow metal enjoys a comfortable market position and is not volatile like other investments, makes the process of applying and disbursing gold loans quite simple. From the process point of view there are two ways to apply for a gold loan, an online application and an offline application for a gold loan.
- By applying online the basic details like address, mobile number are shared with the NBFC and you are mapped to the nearest branch, thus speeding up the process, you just need to visit the branch to hand over the gold and few requirements it occurs.
- In an offline loan, the borrower must carry a required ID proof and the gold they wish to deposit. A guarantor or any previous gold certificate is not required. The NBFC itself ascertains the value of gold on the spot, grants loans and provides certificates of deposit against the collateral.
How is the Gold Loan interest rate calculated?
The variables affecting the gold loan interest rate are the loan tenure and principal amount. The creditworthiness of the borrower has no effect on the interest.
The interest rate also varies depending on the particular gold loan scheme. There are special plans designed for business borrowers, small time borrowers, borrowers for personal expenses and even women borrowers.
Almost all the banks and NBFCs that offer Gold Loan also provide the facility Gold Loan Interest Rate Calculator on their websites.
To know the estimated monthly installment for a specific loan amount under a particular scheme, you can enter variables including loan value and tenure to get the value of the monthly installments. To calculate the total interest charged, subtract the principal amount borrowed from all the installments to calculate the total interest payable.
Most of the gold loan lenders charge an interest rate of anywhere between 12%-24% p.a. depending on the nature of the loan. Muthoot Fincorp is a leading Gold Loan Lender in India, helping you meet all your major financial goals with ease. Muthoot Gold Loan Interest rates are an appropriate reflection of the interest charged by many major lenders in the market.
Gold loan has been a tremendous success in South India, and is slowly but surely seeping into Central and North India as a reliable financial instrument. As long as the yellow metal is a permanent feature in home lockers, the Indian gold loan market will continue to lead the short-term and long-term credit needs of retail borrowers in India.