If you’re thinking about taking a gold loan, ask these questions first

• For borrowers, there has been a huge surge in options to take loan on gold as banks, new tech platforms like IndiaGold and Rupeek, are piling on this space.
• Ensure that the lender/company that you are mortgaging your gold with, will keep your gold safe and return it when the loan is repaid.
• If you are expecting gold prices to go up in the near future, it is wise to wait before you mortgage the gold.

Gold loan companies like Muthoot Finance and Manappuram Finance have seen a sharp recovery in gold loans in the June to September quarter. Muthoot’s profit has reached nearly ₹1,000 crore in these three months.

Clearly, there is a huge demand for gold loans. While Manappuram is yet to release its numbers, Muthoot has given over ₹6,000 crore worth of loans in these 3 months to new and older, but inactive, customers between June and September, according to a report from ICICI Direct dated November 7.

This is the highest amount disbursed by Muthoot in the last 10 quarters and it has led to a surge in the stock price.

For borrowers, there has been a huge surge in options as well. Banks, new tech platforms like IndiaGold and Rupeek, are piling on this space because gold as a collateral makes the loans less risky, especially since prices of the precious metal have been on an uptrend.

So, here are a few things to keep in mind before going for a gold loan:

Trust is the most important requirement. You need to be sure that the lender/company that you are mortgaging your gold with, will keep it safe and return it when the loan is repaid.

If you are expecting gold prices to go up in the near future, it is wise to wait before you mortgage the gold. Lenders give loans based on the value of the gold kept as collateral.

Therefore, if the price of gold goes up, then one can get a bigger loan for the same amount of gold. If you need a lesser loan, you can reduce the gold offered to the lender.

Similarly, if the price of gold falls, the lender may ask you for more gold in the near future to make up for the loss of value in the collateral. So, ask yourself if you would be able to turn up the additional amount, if needed.

As George Alexander Muthoot himself has warned in the past, gold loans aren’t usually taken for long durations like two or three years.

People mortgage gold jewellery, which is often more precious due to the emotional attachments and memories associated with them, to meet a short-term requirement of a few days or months because the interest rates on gold loans are also high.

These are the interest rates charged on gold loans by some of the top lenders

Company	Amount	Interest rate (per annum)
HDFC Bank	₹10,000 onwards	11% to 16%
Axis Bank	₹25,001 to ₹25 lakh	13.50 to 16.95%
SBI	₹20,000 to ₹50 lakh	7% onwards
Kotak Mahindra Bank	₹20,000 to ₹11.5 crore	10% to 17%
IndusInd Bank	Up to ₹10 lakh onwards	11.5% to 16%

Source: Bank Bazaar

While gold loan providers do not ask for the borrower’s credit score, popularly known as CIBIL score, any failure to repay the loan will reduce the borrower’s credit score and affect future loans.

If you are providing jewellery as collateral, be sure you won’t need it until the time the loan is repaid and the jewellery is returned.

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