As the gold rates go up, you can avail higher loan amounts on your gold. For instance, on 18 March 2010, you would have got a loan of up to Rs1.50 lakh for 100g of gold, worth Rs16,701 per 10g then. While on 18 March 2011, when gold was at Rs20,776 per 10g, the same quantity of gold would give you a loan of up to Rs1.87 lakh.
Most banks and NBFCs provide the option of providing loans against gold at the interest charge of 12-15%, of which you are entitled to a loan amount of 70-90%. In case of urgent money requirement, availing a gold loan is quite cheaper compared to other avenues of debt like personal loan, credit cards etc. Also the processing time is comparatively less, where you loan amount is sanctioned to you within a matter of few hours.
Availing gold loans from banks and NBFCs is the best source than pawn brokers and private money lenders, as they generally charge exorbitant interest rates. You can also pledge gold exchange-traded funds or State Bank of India gold certificates. Some NBFCs also take gold coins. The best part is that most lenders don’t charge a prepayment penalty in case you want to pay off the loan in advance.
But, apart from all these up sides, you should remember that, if you are unable to repay your loan amount you will have to pay a late payment fee. After the expiration of the tenor, you usually get a 90-day grace period to repay your loan. If you fail to pay even then, your gold can be seized by the lender.