Need funds in a hurry? Put your gold to work

3 MinsSep 16, 2020

What would you do if you have an urgent need for money? Either you borrow from friends or family or you take a personal loan. To take a personal loan, you either need to have an existing relationship with the bank or a high credit score. If not, you may be charged a higher interest rate.

There is another option that is quick and easy and will not put undue strain on your finances. You can take a gold loan. Most of us have gold in some form or the other. It could be gold jewellery or coins. Usually, we keep it under lock and key at home, or in safe custody in the bank locker. But if you need funds in an emergency, you can avail a gold loan easily. 

gold loan

A gold loan may work out cheaper than a personal loan since it is a secured loan. You are pledging your gold as collateral with the bank and borrowing money against it. Recently, the Reserve Bank of India increased the Loan to Value (LTV) for gold loans from 75% to 90%. This means you can get a higher loan for the same amount of gold. Let us see what the benefits of a gold loan and how to go about taking one if you need funds. 

Benefits of Gold Loan 

A personal loan is no doubt easy to get, provided you are an existing customer of the bank or your credit score is high. If not the bank will first verify your income status, employment conditions and other factors and only then sanction the loan, as it is an unsecured loan. There are chances that you may be charged a higher gold loan interest rates if you don’t match the bank’s criteria.  

As compared to this, a gold loan is easier to get since it is a secured loan. If your gold meets the bank’s standards, it is almost a guarantee that you will get the loan. A low credit score also doesn’t matter because you would be pledging your asset, i.e., the gold, with the bank. This makes a gold loan a good option for emergencies.

There are different repayment options too:

  • Regular loan repayment where the EMI accounts for a certain amount of interest and principal. 
  • Pay the interest regularly and clear out the principal at the end of the tenure. 
  • A bullet payment option where you can make the entire repayment (including interest and principal) at the end of the tenure.

 [Also Read: How you can gain from gold’s glitter]

How does one get a Gold Loan?

You have to visit the bank branch (some lenders offer home visits) along with your gold, KYC documents and residential proof. The bank evaluates the value of the gold and offers a certain amount as a loan against it. The amount is then transferred to your account, and the gold is kept with the bank in safe custody. 

The loan amount is decided based on the Loan to Value (LTV) ratio. LTV refers to the amount of loan you can get, in comparison to the value of your asset. This is fixed by the RBI and the bank cannot give you a loan amount that is higher than the LTV. 

Earlier, the LTV for gold loans was set at 75%. This meant you could get up to 75% of the value of your gold. Recently, the RBI increased this limit to 90%. So, now you can get a higher loan amount for the same value of gold. For example, if your gold is valued at Rs. 50,000, you may get a loan up to Rs 45,000. Earlier, you would have got a loan of up to Rs Rs 37,500 only. 

Higher LTV can help in an emergency

The higher LTV is useful in an emergency or if you are facing some financial pressure and need money. However, keep in mind that if gold prices fall below the LTV, the bank may ask you to make a part payment of the loan immediately, which could add to your financial pressures. If you are unable to make this payment, the bank has the option to liquidate your pledged gold.

It, therefore, makes sense not to borrow to the hilt and a keep a higher LTV margin. This way, you can meet your financial emergency and still retain ownership of your gold. Axis Bank Gold Loans are available at all Axis Bank branches. Visit your nearest Axis Bank branch for more details.

Disclaimer: The Source, a Mumbai-based content creation, and curation firm have authored this article. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.