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Things to know before you take a gold loan in the current scenario

The working group on gold loans headed by K.U.B. Rao suggested that the cap on the loan-to-value ratio of gold loan NBFCs be raised gradually from the current 60% cap. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)Premium
The working group on gold loans headed by K.U.B. Rao suggested that the cap on the loan-to-value ratio of gold loan NBFCs be raised gradually from the current 60% cap. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)

  • While most lenders offer gold loans for up to a one-year tenure, some banks allow borrowers to extend the tenure
  • Interest rates that non-banking financial companies offer on gold loans are the highest among all lenders.

Lenders have seen a surge in demand for gold loans in the past few months. Many small businesses used goal loans to manage their cashflows.

To give an example of the industry trend, for Federal Bank gold loans grew 67% year-on-year in the December quarter.

If you are going for gold loans now, do keep a few things in mind. Gold loan prices have corrected in recent months. Some lenders have accordingly changed the tenures and have been incentivising borrowers to repay monthly or more frequently. Muthoot Finance, for example, is offering a rebate for monthly interest payment.

Typically, most lenders offer gold loans for up to a one-year tenure. Only a few like Kotak Mahindra Bank or Bandhan Bank give gold loans for a period of three years or more, according to data from Paisabazaar.com. However, some lenders allow borrowers to extend the tenure. The tenure also depends on the type of loan scheme and repayment option that the borrower chooses.

Only a few banks like Kotak Mahindra Bank or Bandhan Bank give gold loans for a period of three years or more.
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Only a few banks like Kotak Mahindra Bank or Bandhan Bank give gold loans for a period of three years or more.

Like many other loans, the public sector banks offer the lowest interest rates, followed by private banks. Interest rates that non-banking financial companies offer are the highest among all lenders.

Lenders usually accept gold ornaments that are between 18 and 22 carats. If you offer bank-minted coins as collateral, most lenders accept up to 50 grams of coins and 24-carat purity.

There can be multiple charges in a gold loan. Besides processing charges, there’s a stamping charge, evaluation charge; some lenders can also have foreclosure charges, etc.

Lenders can ask for more collateral if gold prices fall, like in the recent months. If the borrower doesn’t repay or offer more gold, lenders can charge a penalty and even sell the gold after several reminders.


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