India is the second-largest consumer of gold in the world due to its culture which places a lot of emphasis on gold coins, gold bars, gold jewellery & ornaments, etc. Needless to say, women are amongst the biggest consumers of gold. A gold loan is a quickest and simplest way to turn your gold into cash in a short span of time. Gold loan is hence ideal for a situation when money is required urgently for emergencies, business purposes or any contingent expenses.
For obtaining a gold loan, one does not require a credit score or any income proof which many Indian women do not have. The only requisite documents required for obtaining a gold loan are an Aadhaar card, PAN Card, Voter ID Card (or simply KYC documents) and address proof. As soon as the gold is given for evaluation to the bank, the loan amount is determined along with interest rates. The lowest interest rates are offered by public sector banks while the highest interest rates are offered by Non-Banking Finance Companies (NBFCs). Ideally, a bank will only provide gold loans for a maximum loan to value ratio of 75% of the current market price of the gold.
Mostly, gold loans are offered only for a period of one year. However, many banks extend this tenure, whereas a few banks like Manappuram Gold Loan allows you a tenure of three years or more. Nonetheless, the tenure depends on the repayment option and the type of loan scheme preferred by the borrower.
In a gold loan, the repayment option is very flexible. The borrower can pay the amount as a lump sum on maturity or can re-extend the tenure by re-pledging the gold at the current Loan To Value (LTV) Ratio. Some banks and NBFCs also allow early repayment and partial payments for those who can pay, without any penalties. The flexibility to repay loans and interest is another added benefit. There is also no limit on how many times the same gold can be re-pledged for a new loan. As a result, the borrower has the opportunity to use the same gold to obtain new loans as many times as possible. Hence in this way, a gold loan also acts as an overdraft against the pledged gold. All of this is beneficial for women since the burden of monthly payment of instalments is avoided. This helps in avoiding short-term money problems or crunches, especially in a business.
However, the value of the gold given as collateral is subject to a lot of charges as well as changes. In case the gold prices fall, the bank may ask for more gold in lieu of the gold loan provided. If the borrower/defaulter is unable to repay or provide more gold as collateral, the bank has the option to charge a penalty or to sell off the collateral gold in form of payments.
The maximum Loan to Gold Value on the lowest interest rates is currently offered under the AtmaNirbhar Mahila Gold Loan scheme of the Bank. This scheme was recently launched by Vidya Balan in order to make women of India more reliant. It aims to help those women of India who currently rely on local money lenders for their financial needs. Such money lenders often offer a very high interest rate along with a comparatively low Loan to Gold value to exploit women.
Hence, a gold loan rate is one of the most suitable and favourable ways for women to take loans against their gold ornaments or gold jewellery due to convenient payout options, low risks involved and easy convertibility into loans. However, one must always assess the risks involved and weigh them with the opportunity costs before making a decision.
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