Personal loans and credit cards can cause extensive damage to your finances with interest charges being typically around 14-36% per annum. The cost of gold loans, on the other hand, would be comparatively much more palatable at around 12-18% p.a.
Banks and finance companies (including some whose sole business is gold lending) constitute the formal sector in this business. As you know, there is a huge informal sector too that lends against gold, especially in the rural areas and small towns.
Typically, here's what banks and NBFCs would offer you, when you approach them for a loan against your gold holdings.
Form : Jewellery / ornaments preferred (not every lender accepts Gold coins). Also banks don't accept bullion.
Limit : Typically around 75% of the value of gold [Imp: Accrued interest is included for calculation of Loan to Value (LTV)]
Valuation : RBI has prescribed the average of the closing price of 22 carat gold for the preceding 30 days as quoted by the India Bullion and Jewellers Association Ltd.
Maximum Amount : Banks normally lend up to Rs.15-25 lakhs. But with NBFCs this limit could go up to even Rs.1 crore.
Tenure : Normally up to 12 months. Hence ideal for short term requirements.
Disbursement : Within a few hours (though some companies promise to give you cash within minutes).
Interest payment : Accrued on monthly basis. Can be paid either monthly or even on maturity together with the principal amount. Hence no tension of EMIs.
Other charges : Mainly loan processing fees and gold valuation charges
Foreclosure : Allowed. Some have foreclosure charges and some don't.
Security : Gold deposited by you is insured besides being stored in appropriately secured safes / premises.
Documents : Photograph + Proofs of Identity, Address and Signature
USP : No income-proof. No guarantor.
Given the competition, it would be prudent to hunt around for a good bargain; unless you are fighting an emergency.
[Note: These apply to loans for non-agricultural end-use only. Those for agricultural purposes are different.]
