Loan against Gold

Who Gives the Bet­ter Deal?

Consumer Voice - - Front Page - – Subas Tiwari and Gopal Ravi Ku­mar

Why would you pledge your pre­cious gold jew­ellery for a loan when you can bor­row from banks with­out col­lat­eral at al­most the same in­ter­est rate? Or, why would you take gold loan from a non-bank­ing fi­nance com­pany (NBFC) know­ing that there are other op­tions avail­able in the mar­ket?

The an­swer is sim­ple. As loans against gold are se­cured – with gold be­ing pledged as col­lat­eral – ob­tain­ing a loan is has­sle-free, re­quires lit­tle doc­u­men­ta­tion, has eas­ier re­pay­ment op­tions and in­volves no pro­cess­ing fee. Those who can­not ful­fil the strict el­i­gi­bil­ity and doc­u­men­ta­tion cri­te­ria of banks can eas­ily avail of gold loans. So then, which bank or NBFC pro­vides the best gold loan op­tion and what are the ad­van­tages/ lim­i­ta­tions of the same? What el­e­ments should one look at be­fore avail­ing the gold loan? Th­ese and more such queries that may bother you have been ad­dressed in this re­port.

Team CV thor­oughly an­a­lyzed gold loans of­fered by the top non-bank­ing com­pa­nies as well as by pop­u­lar banks and com­pared and rated them on the pa­ram­e­ters that would mat­ter the most.

What Is It?

As the name sug­gests, gold loan is loan ob­tained against gold – gold jew­ellery or coins are mort­gaged

as col­lat­er­als. Many na­tion­al­ized banks, pri­vate banks and other fi­nan­cial com­pa­nies of­fer this loan at at­trac­tive rates. Many go for this loan for the short pe­riod to meet the re­quire­ment of their chil­dren’s ed­u­ca­tion/mar­riage and to ad­dress other un­ex­pected or ur­gent fi­nan­cial needs of the fam­ily. It is also gain­ing pop­u­lar­ity as small busi­ness­men be­lieve that in­stead of keep­ing the gold idle at home or in a locker, it is bet­ter to avail a loan against it and in­vest in their busi­nesses. Ba­si­cally, like you mort­gage prop­erty to ob­tain other loans, here you let the NBFC or the bank keep your jew­ellery as col­lat­eral and ob­tain loan up to 75 per cent of the value of your jew­ellery.

A Bet­ter Credit Op­tion?

Gold in lock­ers gains no in­ter­est, but a loan against it can bring down your EMIs as it has a lower in­ter­est rate as com­pared to per­sonal loans. The value of loan that you can ob­tain de­pends on the value of the gold given as se­cu­rity rather than your repaying ca­pac­ity. Some com­mer­cial banks al­low over­draft lim­its based on the value of the gold de­posited with them. There is no re­pay­ment clause; in­stead, there is a stan­dard in­ter­est rate on the over­drawn amount. It gets you re­volv­ing credit as and when the ear­lier availed amount is re­paid ei­ther in full or in part.

A few of the banks also give loan against gold

coins is­sued by sched­uled com­mer­cial banks.

Weigh­tages to Iden­ti­fied Vari­ables

Based on con­sumers’ pref­er­ence and per­cep­tion as brought out from the ques­tion­naires framed for the pur­pose, we have iden­ti­fied the fol­low­ing vari­ables as im­por­tant and in­flu­en­tial. Suit­able points have been as­signed to th­ese vari­ables to iden­tify the best, good and fair buy ‘gold loan prod­ucts’ in the mar­ket.

Charges You Should Know about

It is ad­vis­able to un­der­stand all the charges in­volved be­fore tak­ing a loan, as th­ese charges could de­ter­mine the amount that you may fi­nally re­ceive.

Loan pro­cess­ing

While some of the ser­vice providers have no pro­cess­ing fees, a few banks do charge a nom­i­nal pro­cess­ing fee for pro­cess­ing gold loan.

Val­u­a­tion

Th­ese are the charges to be paid to the val­u­a­tor/ jewel ap­praiser. Th­ese charges are also spe­cific to the ser­vice provider and those having in-house val­u­a­tors do not charge any ex­tra amount for val­u­a­tion. How­ever, some banks have a pro­vi­sion for pay­ing val­u­a­tion charge ev­ery year be­yond a cer­tain cut-off limit of a gold loan.

Late pay­ment penalty

Most of the ser­vice providers charge late pay­ment penalty and this too can vary from one in­sti­tu­tion to the other.

Pre-pay­ment penalty

While most of the ser­vice providers do not charge a penalty for re­pay­ment be­fore the loan ten­ure is over, some have a min­i­mal charge in place.

Doc­u­ments Needed to Avail Gold Loan

Iden­tity proof such as pass­port, voter ID card or driv­ing li­cense Ad­dress proof such as elec­tric­ity bill, ra­tion card, tele­phone bill or credit card bill For sig­na­ture proof, one has to sub­mit pass­port copy, driv­ing li­cense, PAN card or any other doc­u­ment bear­ing one’s sig­na­ture

Two pass­port-size pho­to­graphs A dec­la­ra­tion to the ef­fect that the gold of­fered as se­cu­rity for the gold loan is one’s own In­ter­est pay­ment man­date and man­date for sell­ing off gold if the loan does not get closed by the ten­ure pe­riod or for any un­paid in­ter­est/charges

NOTES

On As­sess­ment from BANKS

Dur­ing our study of com­mer­cial banks’ branches (the ones au­tho­rized to per­mit sanc­tion of gold loans), we ob­served that the branches lacked the will to is­sue gold loans. It seemed that they lacked req­ui­site skills and prod­uct knowl­edge. Also, the branch staff shared the gen­eral public per­cep­tion that very few con­sumers walked in to in­quire about gold loans. We learnt that banks were not very en­thu­si­as­tic about this loan as they per­ceived there was a higher risk in­volved as com­pared to reg­u­lar loans.

This per­cep­tion se­verely re­stricted Team CV’s ef­forts to meet con­sumers want­ing to avail gold loan from banks. We also could not as­sess the ser­vice per­spec­tive. Hence, 100 per cent as­sess­ment of gold loan from banks has been done on the ba­sis of prod­uct struc­ture.

On As­sess­ment from NBFCs

The prod­uct struc­ture was con­structed af­ter ob­tain­ing in­puts from the var­i­ous web­sites of NBFCs han­dling gold loan. The facts on their web­sites were con­firmed ei­ther through a tele­con with their rep­re­sen­ta­tive or through per­sonal vis­its. We found that NBFCs were a bit hes­i­tant about sharing the required in­for­ma­tion.

As we spot­ted walk-in con­sumers want­ing to avail gold loans in th­ese NBFCs, we were con­fi­dent of get­ting the in­for­ma­tion from the de­mand side. Since most of the NBFCs ex­tend non-bank­ing ser­vices, their main thrust is on ‘gold loans’ as this loan prod­uct en­sures growth due to the higher rate of in­ter­est. In the case of NBFCs, where cus­tomer ser­vice plays a sig­nif­i­cant role in get­ting bor­row­ers as well as sus­tain­ing long-term as­so­ci­a­tion with them, we have al­lot­ted 50 points on prod­uct struc­ture and

50 points on ser­vice feed­back for NBFCs, un­like banks where 100 points were al­lot­ted to prod­uct struc­ture.

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