6 smart things to know about gold loans

Here are six things you should know about gold loans

1) A loan against gold, held as coins or jewellery, can be taken from non-banking financial companies and gold finance companies.

2) A loan of up to 60% of the value of gold is offered by these companies after checking the metal for purity and ascertaining its value.

3) Coins and bars with higher purity offer more value than gold jewellery or that encrusted with precious stones, which is valued only for the gold component.

4) Loans require hypothecating the gold with the finance company, which keeps it in its custody until the loan is paid.

5) The interest on loan can vary from 16-24% per annum. It is usually repayable in 12-18 months in equal instalments and includes interest and principal.

6) If there is a default in repayment, the finance company can sell the gold that is hypothecated and recover its dues as per the terms of loan agreement.

Courtesy Centre for Investment Education and Learning (CIEL).