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Loan against Gold is a smart idea

Loan against gold ornaments / jewellery is any day a better alternative than personal loans or credit cards. The obvious reason is the interest cost (and in the bargain you would also save on the paperwork and your precious time).

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.]


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