Gold loans provided by banks and NBFCs are growing at 8.45% annually. ICRA has estimated gold loans worth Rs 10 lakh crore to be disbursed in the current financial year 2024-25. The credit rating agency has estimated it to reach Rs 15 lakh crore in the next three years.
AM Karthik, Co-Group Head, Financial Sector Ratings, ICRA, said, “The Reserve Bank has tightened the rules for unsecured loans like personal loans. Meanwhile, due to rising gold prices, the trend of taking gold loans is increasing in 2023-24. It is expected to gain pace in the next financial year i.e. 2024-25.”
Gold loans increased 25% annually in the last three financial years
According to ICRA's report, the top-4 companies dominated 83% of the gold loan market in 2023-24. The organized gold loan market has grown by 25% annually between 2019-20 and 2023-24. During this period, the gold loan book of banks grew by 26% and the gold loan book of NBFCs grew by 18% annually. Agricultural loans taken from banks by pledging jewelry grew by 26% and retail gold loans by 32% in the same period.
Things to keep in mind before taking a gold loan
Some points It is important to consider several aspects before taking a gold loan. These include interest rates, loan-to-value ratio, processing fees and loan repayment terms. Above all, the safety of the gold you pledge is of utmost importance. In such a situation, you should choose a reputed lender (i.e. a firm offering gold loan) that has a secure storage or locker facility or an insured vault.
- Gold loan is a secured loan. The financial risk of the lender is reduced by pledging gold.
- Gold loan processing takes comparatively less time. It does not require much paperwork.
- As gold prices rise, the value of your investment can increase, making taking a gold loan a profitable deal.
For how long can you take a loan?
Usually you get 3 to 2 years to repay the loan. But it depends on the bank and NBFC. Like HDFC Bank gives loan for 3 months to 2 years. SBI gives it for three years. Muthoot and Manapuram give loan for longer period.
What is the maximum gold loan one can take?
The maximum loan amount you will get is 90 thousand rupees on gold worth one lakh. SBI gives gold loan up to 50 lakh rupees. They also give loan of 1500 rupees. Since these companies give only gold loan, there is no maximum limit here.
Are any documents required for gold loan?
According to the SBI website, you will have to provide PAN card, Aadhaar and 2 passport size photos. Apart from this, you will also have to provide proof of address.
Does this take into account your credit score?
Gold loan is a type of secured loan. That is why your credit score does not matter in this. You get this loan easily and at a lower interest rate than a personal loan.
How to repay the loan?
Banks or NBFCs give you several options to repay the loan amount and interest, you can choose any of them according to your need. You can pay in equal monthly installments (EMI). Apart from this, you can pay the interest during the lump sum principal payment. This is called bullet repayment, and in this the bank charges interest on a monthly basis.
What will happen to your gold if you do not repay the loan?
If you are unable to repay the loan on time, the lender has the right to sell your gold. Apart from this, if the price of gold falls, the lender can also ask you to pledge additional gold. Taking a gold loan is right only when you need money for a short time. It would not be right not to use them for big expenses like buying a house.
Graphics Source: VaskarAssets
