Greater Bombay Cooperative Bank ( Greater Bank), announced today that will be allowing customers to get loans against their gold ornaments. The scheme is designed to provide liquidity against gold ornaments without having to sell them. The scheme offers a free Savings account to the customer even for a small amount of money against gold jewellery to meet the immediate need of cash of the people.
The money offered is based on the prices of the base rate (i.e, 24 karat gold is Rs. 2,100 as per the base rate and this base rate changes every month as per the average of the previous three months), said a Greater Bank press release.
Many banks and NBFCs offer such loans to customers who need cash instantly. Although the processing time can take from 10-20 minutes to six days.
The minimum interest rate charged on loans against gold can be as high at 14.5% a year. Greater Bank in its press release said that one can avail a loan as low as Rs.10,000 to Rs. 25,00,000 at an interest rate of 13% p.a. on daily reducing balance.
However, these loans are cheaper than personal loans which can range anywhere between 14-30% a year. “Why take a personal loan when you can put your jewellery to use? You can always get rid of the loan once you have a surplus”, said a financial planner.
| SBI | HDFC bank | Mannapuram Finance | Greater Bank | |
| Interest rate | Up to Rs 1 lakh = 14% Above Rs 1 lakh =14.5 % | Base rate of 12 % and an additional interest (amounting to risk premium) ranging from 3-12 percent is charged over and above the base rate | 13% p.a. on daily reducing balance | |
| Processing fee | Up to Rs 25, 000= Rs 500 per application Above Rs 25, 000 = 1% of the loan amount inclusive of service tax or Rs.1000/- per application whichever is higher | Up to 1.5% of loan amount | None | |
| Loan amount | Upto Rs 10 lakh | Upto Rs10 lakh | Upto Rs 1 crore | Between Rs 10,000 to Rs 25,00,000 |
| Loan tenure | Upto 30 months | 6-12 months | Upto 1 year | Upto 1 year |
An advantage, financial planners say with such loans is that since jewellery acts as a security, fewer documents are required. Your credit score may also not be required. However, if you fail to pay back the loan, the bank will retain your jewelry. Most institutions charge anywhere between two-three% annually, as penal interest over and above the applicable rate of interest, if you do not pay back in time.
It is advised not to avail of a loan against gold ornaments if you are taking it for consumption purposes such as buying a new accessory. For instance if you are looking at taking such a loan because you need the money to renovate your house—don’t do it.
You can take these gold loans to bridge a larger loan gap and preferably for smaller amounts as the loan tenure allowed by most banks is around a year.
