The current lockdown situation in India has impacted everyone around us, like people have lost their jobs, pay cuts, difficulty in working remotely, shutting down of businesses, shortage of raw materials, labour and medical emergencies. 

This impact has left people to rely on loans from banks and non-banking financial institutions. There is an increase in demand for loans for emergency needs. 

India is the second-largest consumer of gold. The gold acts as a security. A gold loan can be availed easily and would be a mindful decision to opt for urgent needs like the current coronavirus pandemic. 

In this article, you will get to know what is a gold loan, what are the gold loan interest rates offered, how to check gold loan eligibility, which are the factors that affect gold loan interest rates.

What is a Gold Loan?

• There are two kinds of loans – secured and unsecured.
• Unsecured Loans are loans without any collateral security. An unsecured loan is given on another basis like credit score, income, employment type, financial stability.
• Secured Loans are loans with collateral security like gold, property, sovereign gold bonds.
• Gold loans come under secured loans, such loans are less risky, and hence they offer a lower interest rate. 
• The best thing about gold loans is that you can get your gold back after payment of the loan. In this way, you don’t have to sell your gold.
• Even if you have to sell your gold, you will yield higher, as gold prices consistently increase as per situations.

Financial Benefits of a Gold Loan –  

• Low-interest rate, 
• Easy repayment options are available,
• Less Documentation, No income proof required,
• Lesser or no processing fees,
• There is low or no foreclosure fees; some banks may charge a 1% prepayment penalty,
• Option to pay interest only, paying the principal amount at the time of loan closure,
• Loans are received easily in a short period,
• If you have a bad credit score, it will not matter,
• The safety of the gold is in the hands of the lender.

Gold Loan Common Eligibility – 

• Age should be between 18 to 75 years.
• The profession can be farmer, trader, salaried or self-employed professional, businessman.
• Documents you should be having for identity and address include Passport, driving license, Aadhaar card, Voter ID, PAN Card. 
• Documents for the gold is the bill of the gold that you have purchased and want to keep for the loan.
• The gold articles which can be accepted are gold coins, ornaments, jewellery, bonds, etc.
• The minimum gold purity should be 18 Karat.

Gold Loan Interest Rate and other benefits of Banks and other Non-Banking Financial Institutions.

Factors That Affect Gold Loan Interest Rate:

• Loan Amount – High Interest for small amounts. 
• Interest Rate Method – The fixed (constant interest) or floating (fluctuating) rate of interest, Flat Rate or Reducing rate method. The flat rate method in which the gold loan rate is calculated on the original loan amount throughout the loan tenure. The reducing balance method calculates the interest rate on the outstanding gold loan amount.
• Loan to Value Ratio (LTV) – High LTV ratio higher interest.Another option you can consider is cash against gold. Gold Loan lends 75% at LTV whereas You can also avail Cash for Gold which would be 99% around the actual value.”
• Existing bank account holder – If you are an existing customer, then they will provide an affordable interest rate.
• Purpose of loan taken – for agricultural purposes (low), to avail overdraft facility (high).