A gold loan is a secured loan taken by the borrower from a lender by pledging their gold articles (within a range of 18-24 carats) as collateral. The loan amount provided is a certain percentage of the gold, typically up to 80%, based on the current market value and quality of gold.
For a Gold Loan, the bank takes your gold as collateral. This is taken for the period of the loan. Banks charge a specified interest rate. Once you repay the entire loan, the bank returns your jewelry.
What are Gold Loans?
Gold loans are one of the preferred means of raising funds in times of emergency for many Indians. A gold loan is a loan offered by a bank or a Non-Banking Financial Company (NBFC) to an individual who offers gold as collateral. The gold may be in the form of jewelry. The amount of loan you can obtain by depositing gold as collateral depends on the following factors:
a) The weight of gold deposited
b) Purity of gold deposited
c) Prevailing price of gold in the market
d) Loan-to-value ratio – this usually ranges from 70% to 90% depending on the lender
A gold jewelry loan is a relatively easy means of raising funds for ordinary Indian citizens. It is also an easy option of raising funds for Non-Resident Indians. This is because of the simple application and documentation process and the eligibility criteria.
How do Gold Loans Work?
For a Gold Loan, the bank takes your gold as collateral for the period of the loan. Banks charge an interest rate, and once you repay the entire loan, the bank returns your jewelry.
The Type of Gold Accepted
Another crucial thing to understand about Gold Loans for NRI is what type of gold is accepted by most banks in India. Generally, most banks in India accept only gold jewelry that has a purity between 18k and 22k.
Maximum Loan to Value ratio provided by banks
Generally, most banks provide Gold Loans for a maximum loan-to-value ratio of 75% of the current market price of the gold. So, if you mortgage gold worth ₹ 100,000; the maximum loan amount you can get is ₹ 75,000.
Gold Evaluation and Loan Sanction Process
The bank evaluates the gold provided as collateral, after which it determines the maximum loan amount you can get. It also determines the interest rate levied on it. As the borrower, you can select the loan repayment tenure, which should be between 6 and 24 months.
Gold Loan Eligibility for NRIs
For an NRI to secure a gold loan from a bank or non-banking financial institution the following criteria will apply:
- The person should be aged between 18 to 60 years.
- He / She must have a valid passport.
- In addition, an NRI MUST apply along with a co-applicant to secure a gold loan.
Advantages of Gold Loans over other loans for NRIs
There are several banks and NBFCs that offer NRI gold loans. The gold loan process is far simpler than the process of obtaining any other kind of loan in the case of NRIs.
Less Documentation
The number of documents that an NRI needs to submit is also much less compared to other kinds of loans. Most lenders only require the NRIs passport which serves as proof of address and proof of identity.
No Need for a Good CIBIL Score
As many NRIs spend very little time in the country, the chances are that they will not have any relationship with lenders and credit card institutions. Thus, there will be no credit rating record available with credit rating bureaus such as CIBIL and Equifax which are licensed to operate in India.
As a gold loan is a secured loan, lenders do not require a borrower to have a good CIBIL score to secure a gold loan. One can secure a gold loan for NRIs without any CIBIL score record. However, if you do not have a CIBIL score or a CIBIL score above 750, it also usually means that you will be charged a slightly higher rate of interest than an applicant with a good credit rating record. However, as a gold loan is a secured loan, lenders usually charge a lower interest rate on gold loans in comparison to other unsecured loans.
Ease of Application
Another reason why NRI gold loans are seen as a preferred option for raising funds for NRIs is the ease of application. Many lenders now offer gold loans online. One can apply for a gold loan with a few clicks or a few taps on thr phone screen. You can also use a Gold Loan EMI Calculator to get an idea of the amount of gold you need to deposit to get the loan you need.
Online Application for Gold Loan
Since most NRIs spend only a few weeks a year in India, time is of great value. The convenience of applying online for a gold loan makes it a preferred option while applying for a loan. Once you submit your application, most lenders will send an official to your doorstep for valuation and collection of the gold to be deposited as collateral. After the valuation is complete and the gold loan agreement is signed, the loan will be transferred to the designated account quickly.
Flexible Repayment Option
Another reason why gold loans work for NRIs is the flexible repayment options offered by most lenders. A borrower can choose to pay in regular monthly or quarterly EMIs. He or she may also choose the option of only paying the interest component at regular intervals and repaying the principal in bulk at the end of the term. Alternatively, some lenders allow borrowers to repay the entire principal and interest in one go at the end of the loan term.
Final Thoughts
To conclude, an NRI in urgent need of funds will find gold loans offered by banks and Non-Banking Financial Institutions an easier way of raising quick funds during a crisis. One only needs to ensure that you meet the eligibility criteria and have a reliable co-applicant. The most important thing is to plan your gold loan wisely. This is to avoid losing some or all of the gold deposited due to non-payment of the agreed amount to the lender as per the repayment schedule.
Yes, a Gold Loan can be given to an NRI.
The latest RBI guidelines for gold loans require lenders to disclose all terms and conditions of loans, ensuring transparency. Borrowers can access clear information about interest rates, fees, charges, and repayment schedules, enabling them to make informed borrowing decisions.
Gold Loan comes with flexible repayment tenures. The minimum and maximum repayment tenures for this loan are 6 months and 24 months. Moreover, you can get a high maximum Loan-to-value ratio of 75% of the calculated weight of gold.
The gold loan process is simpler than the process of obtaining any other kind of loan in the case of NRIs. The number of documents that an NRI needs to submit is also much less compared to other kinds of loans. Most lenders only require the NRI passport which serves as proof of address and proof of identity.
The purity of your gold jewelry plays a crucial role in determining the loan amount that you can receive. Gold is typically measured in karat, with 24 karats indicating pure gold. However, most gold jewelry and ornaments are not made of pure gold.
