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What is gold loan and the maximum limit of this loan in India?

In Indian culture, gold symbolises prosperity and wealth. It is customary to buy gold on particular auspicious dates. On every occasion, they bought a little bit of gold. Due to years of accumulation, it adds up to a lot altogether. Another poignant habit was transferring the gold to the next generation. Now, you may have heard about a gold loan. Let’s understand what is gold loan. For millennia, people have used gold as a mortgage to get loans. Liquidity would be offered in exchange for gold ornaments and artefacts by lenders. The Gold Loan has experienced one of the quickest growth rates as compared to other financial products. Many reputable NBFCs accept gold jewellery and ornaments as collateral for loans. The LTV Ratio affects how much money can be borrowed against a gold item. The quality of the gold in the jewellery and other internal restrictions also can affect the loan amount. 

Receiving gifts made of gold was regarded as fortunate. Gold decorations have always represented blessings that ancestors dispersed through these ornaments. It wouldn’t be incorrect to suggest that the previous generation received gold in exchange for financial security. This is because of the level of protection gold offers. You should go for a gold loan when you need money immediately. Before that, you must have a clear idea of what is gold loan, the interest and other charges, etc. 

The maximum limit of a gold loan in India:

Because both banks and NBFCs provide gold loan services, comparing their rates, eligibility requirements, and loan amounts is crucial. Every lender may have a predetermined minimum and maximum gold loan limit. The maximum limit of a gold loan in India is Rs. 5 crores.

You must know some vital loan factors once you understand what gold loan and the maximum limit of a gold loan in India is. 

  1. Loan amount limitations- The purity and weight of the gold are used to calculate the gold loan amount. Each financial institution has a sanctioning cap and is only permitted to offer loans that fall within that range. Higher limitations, however, are only permitted in certain circumstances. Special clearances from the management are required for quantities this high. The management will only approve a more significant loan amount if the applicant has a history of on-time repayments.
  2. Gold valuation- The weight and purity of the gold are used to calculate its worth. Up to 75% of the market value of the gold mortgaged may be approved as a gold loan amount. In this case, the Reserve Bank of India has set a limit on the loan-to-value ratio.
  3. Reclaim- A gold ornament or any other type of gold may be mortgaged unlimited times. This option allows a single piece of gold to be used as collateral for numerous loan requests. This feature does not apply to other personal or company loans; it only applies to gold loans. The borrower can recover the loan without switching banks or NBFCs.
  4. Requirement of documents- The document required for gold loan is another important factor. Only recent passport-sized pictures, proof of identity, and proof of address are needed to apply for a gold loan. Lenders could have additional documentation requirements to give an extra degree of security. However, the majority of institutions do not need a lot of paperwork.

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