What are the Important Documents Required while Availing Gold Loan?

There are different reasons why one would apply a loan for. But in most cases, loans are applied for to meet the immediate cash requirements. If you are on a temporary money crunch, a gold loan might be best suited for you. A gold loan is a much better option than personal loans for reasons such as better interest rates, better repayment options, better loan amounts, and quicker and easier processing.

Eligibility criteria For Gold loan

The gold loan eligibility is fairly simple; you must be a minimum of 18 years of age and must have gold to pledge. If you have the capacity to repay your loan and have the right documentation, you are eligible to avail of a gold loan from any bank, NBFC, jeweller or any other lender. Most banks and NBFCs provide gold loans without any obligations of income or salary proof and with documents for identity and address proof. Neither do they care much for credit scores or Credit Information Bureau (India) Limited (CIBIL) scores.

Apart from the basic requirements, every lender has its own eligibility criteria that every applicant has to meet. These include age, profession, educational qualifications, the value of gold, and the repayment terms to name a few. These eligibility criteria differ according to the lender.

Documents required:

Essentially, the higher the value of collateral, the quicker the processing of the application. Hence, when pledging gold, the lender has more security than any other normal loan application, resulting in quicker processing and lesser documentation. Any bank, NBFC, or lender would require only identification proof and address proof before approving a gold loan. In terms of identification proof, one of the following documents would suffice Aadhaar card, PAN card, Voter’s ID, Driving license, Passport, or Job card from NREGA. As for current address proof, the accepted documents are the lease agreement of local address, utility bills like a phone bill, gas bill or water bill, or any of the documents provided for identity proof that also have the current address.

Along with the identity proofs and address proofs, you will also be expected to submit passport size photographs and photo identity proofs. Do remember that you do not need to be an existing customer of the institution to avail a gold loan in case you plan on availing a loan from a bank or an NBFC.

Things to know about gold loan documentation

As compared to other loans, the gold loan documents requirement is fairly simple and the processing is quicker. The benefits in terms of documentation would be:

1. Lesser processing time: gold loans require a shorter time to process the application and approve the loan. The documentation required is less complicated and hence banks, NBFCs, and other lenders require much lesser time to sanction a gold loan.
2. Credit score: To approve gold loans, banks do not require a good credit score or CIBIL score. These scores act as a source of confidence for the lenders before lending their money. But in terms of gold loans, lenders have enough security in the form of gold and hence do not ask for these scores.
3. Salary criteria: For most loans, lenders have a salary criterion that you must satisfy before the loan is sanctioned. This is for the lenders to evaluate your repayment capacity and be sure that their loans will be repaid. Hence, lenders do not expect any documentation for the income or salary of the borrower.

Factors to remember about gold loans

1. Value of gold: Lenders check for a minimum purity of 18 karat in the gold that is being pledged to them. The value that you receive for your gold depends on the purity. It also depends on the market value of the yellow metal. You must also be noted that when using jewellery as security, the value of the stones and gems are not taken into consideration.
2. Repayment structures: Lenders offer various repayment structures to their borrowers. It includes EMI structures, payment of interest and principal together or separate, and bullet payment options to name a few. You can choose the repayment terms according to your repayment capacity, the tenor of the loan, and the loan amount.
3. Interest amounts: The gold loan rate today is much lower than that of personal loans. Ideally, they range anywhere between 9% and 20% according to the lender. Generally, NBFCs charge a higher interest rate due to their higher cost of funds and local lenders charge irrational rates if they are fraudulent.
4. The credibility of the lender: It is suggested that you do a background check of the lender that you choose. Although most financial institutions can be trusted, it is safer to do a credibility check on the local lenders as they are not regulated and dictate interest rates favourable to them while it is unfavourable to you.

Gold loan documents are minimal since the yellow metal is a valuable asset that the banks can auction off to clear their dues in case the borrower is unable to repay the loan. The benefit of a gold loan is that once the documents are processed and verified by the lender. The loan can be disbursed within a matter of hours as compared to the week's taken other types of loans.