Gold loans: Rates, repayment and margins
How does it work?
Loan against gold is a product designed to provide liquidity against gold without having to sell the asset. Once the borrower pledges gold ornaments, coins, biscuits, bars, ETFs, or gold certificates, the lender (Bank/NBFC) provides the borrower with the loan at a predetermined rate of interest. The loan is sanctioned after scrutiny of basic documents and satisfactory evaluation of the gold pledged. Thereafter the amount is disbursed either in cash/DD/ account transfer. The plus point is that the disbursal process is quicker than that of personal loans with some NBFCs claiming to disburse the amount in thirty minutes.
Typically, lenders offer loans for 2-5 years tenure and interest rates are based on the margin of safety. Interest rate increases as the ratio of loan value to market value of gold increases. For example, this is the published set of gold loan schemes by one of India's leading gold loan NBFCs as of 18-Sep-2011.
|
Scheme Name |
Value (per gram) |
Interest (% p.a.) |
|
True Value Personal Loan (TPL) |
Rs. 1,075/- |
12% |
|
Super Value Personal Loan (SPL) |
Rs. 1,875/- |
24% |
|
Real Value Personal Loan (RPL) |
Rs 1,680/- |
17% |
|
Express Personal Loan (XPL) |
Rs. 1,810/- | 20% |
Gold loan vis-a-vis personal loans
- Irrespective of credit history, a borrower can avail gold loan by providing the requisite collateral
- Loan against gold are comparatively cheaper and better than personal loans. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.
- Contrary to personal loan, gold can rates are hugely dependent on the safety margin of the lender
- As compared to personal loans gold loans are hassle-free and are available at the shortest possible time.
- The repayment mode can be structured according to one's convenience.
- There is no pre-payment charges in the case of gold loans
- From the lenders perspective too giving loan against gold is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the lender can liquidate the assets to settle the loan account.
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