Gold loan: In August 2020, RBI increased the loan-to-value (LTV) on gold loans for banks from 75% to 90% in the wake of the pandemic.
Gold loan: Gold loan is a secured loan and its interest rate is less than the interest rate of personal loan, so people prefer to take this loan in times of need. Gold can get you a loan in case of any financial emergency and can help you overcome that situation. In August 2020, the RBI increased the loan-to-value (LTV) on gold loans from 75% to 90% for banks in the wake of the pandemic.
Amid the COVID-19 pandemic, there was a surge in demand for gold loans as families pledged their gold holdings, mostly jewellery. According to the Reserve Bank of India data, outstanding loans against gold jewelery given by banks increased by 82% to Rs 60,464 crore as of March 2021 from Rs 33,303 crore as of March 2020.
repayment option
There are two gold loan options that most banks are offering – Gold Loan with Regular EMI and Gold Loan with Overdraft facility. But some banks and NBFCs offer another mode of repayment in which only the interest component is paid. Therefore, before taking a gold loan, you should know about these three options.
1) Regular EMI
Gold loan with EMI option is the most common. In this, you can go to your nearest bank or non-banking finance company branch to pledge your gold. As per the rules, they will deposit an amount in your bank account with a regular EMI option for a reimbursement period.
As per the new RBI guidelines, you can get a maximum loan amount of 90% of the value of the gold pledged.
interest
Among the banks, Punjab & Sind Bank is offering the lowest interest rate of 7.00% on Gold Loan of Rs.10 Lakh, with a reimbursement period of three years.
Bank of India (BOI) is offering the second cheapest interest rate on Gold Loan which is 7.30% p.a. At the same time, Canara Bank is giving an interest rate of 7.35%.
State Bank of India is offering Gold Loan at an interest rate of 7.5% per annum. NBFCs charge high interest rates ranging between 9.24% to 12% per annum on these loans.
2) Overdraft facility
Gold loans with overdraft facility work like a credit card. When you pledge your gold to the lender, they open an overdraft account with the loan limit.
You are free to spend as much as you want. The interest rate of the gold loan will be applicable only on the amount used by you. All major banks offer gold loans to their customers with overdraft facility.
In a gold loan with a regular EMI option, interest is charged on the entire loan amount, even if you do not spend that amount immediately. But in case of overdraft facility, the interest charge will be applicable only on the amount utilized.
So, in general, a gold loan with overdraft facility can prove to be beneficial. But the interest rate on the overdraft facility is slightly higher – at least 50 basis points compared to an EMI loan.
3) Pay interest only Some banks like ICICI Bank and NBFCs like Muthoot Finance and Manappuram Finance offer another mode of repayment.
A bank official said, “The customer can only pay the interest component at the end of the year and renew the loan for one more year. The customer does not even have to pay EMI. But you should know that in this case the payout is less.
