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Since prices of gold have shot up in the past year, you will get a higher amount as loan against gold than what you would have got a year back on the same quantity of the metal. For instance on 18 March 2010, you would have got a loan of up to Rs1.50 lakh for 100g of gold, worth Rs16,701 per 10g then. While on 18 March 2011, when gold was at Rs20,776 per 10g, the same quantity of gold would give you a loan of up to Rs1.87 lakh.
What’s a gold loan
When you mortgage gold to avail a loan, the loan so taken is called gold loan. Usually, you can get up to 70-90% of the appraised value of the gold mortgaged. You can get a gold loan from a bank as well as a non-banking financial company (NBFC). Of course, traditional money lenders also give gold loans, but they are best avoided.
What are the options
You can get the loan either as a lump sum or as an overdraft facility. Under the lump sum option, you need to repay the loan at the end of the tenor along with the interest rate for the entire loan period.
The overdraft option gives you the facility of withdrawing more money than your available bank balance. For this option, you need to have a savings account with the bank. You have the liberty to use the funds as and when you require and the interest is chargeable on the amount of overdraft and for the time you take to repay it. The interest part is debited from your account at the end of each month.
Other features
The rate of interest varies among lenders, but it is generally in the range of 12-16%, fixed or floating. The loan is available for six months to up to a year. Some NBFCs offer this loan for a shorter duration, too, generally a week or so. Banks give this loan against gold ornaments. You can also pledge gold exchange-traded funds or State Bank of India gold certificates. Some NBFCs also take gold coins. The best part is that most lenders don’t charge a prepayment penalty in case you want to pay off the loan in advance.
The red flags
If you don’t service your loan on time, you will have to pay a late payment fee. After the tenor expires, you usually get a 90-day grace period to repay your loan. If you fail to pay even then, the lender can seize your gold.
—Bindisha Sarang
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