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Why people in rural areas avail gold
loans from NBFC’s
If you live in a rural area you would most probably earn your
income from agriculture. Buying gold is a way of life in rural areas. The
profits you get from the harvesting of crops are used to buy gold.
You require cash in a hurry. The money in your bank account
is almost exhausted. So how would you get cash to tide over this emergency?
Look to avail a goldloan:
Yes… all that gold you have locked away can be used to avail
a gold loan. You can pledge your gold jewelry, coins and ornaments with a bank
or an NBFC and get cash in exchange. You get money (cash) only up to 75% of the
value of gold you pledge with a bank or an NBFC.
Here’s the big
question…Bank or NBFC:
You need cash in a hurry. You are not going to wait for
several months and thousands of questions before you get the gold loan.NBFC’s sanction your gold loan very fast. They charge a
higher rate of interest than a bank. The ease, convenience and the speed with
which your gold loan is sanctioned means you would opt for it.
Banks sanction your gold loan after documentation and a
through eligibility check. They charge an interest of 14-16%.If you avail a gold loan from an NBFC the interest rate
charged is higher at 20-25%.Still a gold loan is availed from an NBFC in rural
areas rather than a bank.
What about the loan to
value ratio of gold loan in an NBFC?
Loan to value ratio is the money you get when you pledge your
gold jewelry with the NBFC. The LTV ratio is 75%.This means that when you
pledge your gold, for every INR 100 worth of gold you get INR 75 worth of loan
(money).
This is done to protect the NBFC from a loss. Since gold loan
is secured (gold is collateral) the NBFC is safe.
What about the purity
of gold pledged with an NBFC?
The gold pledged with the NBFC should be of 18-22 carats.
NBFC accepts only gold jewelry or ornaments as collateral (pledge) and not gold
coins.
This is because your gold ornaments have emotional value.
When you pledge your mothers gold necklace (as collateral) you are very likely
to repay the gold loan.
You wouldn’t care too much if it was just gold coins.
How do you repay the
gold loan from the NBFC?
You have to repay the interest regularly on the gold loan
availed from the NBFC.You pay the principal (Borrowed amount) back at the end of
the term (tenure of the gold loan) and reclaim your pledged gold jewelry.
The tenure of the gold loan can be 3 months up to a year. If
you delay/default on your payments the bank would send you regular reminders.
These reminders are sent if you default on your payments for
over 90 days. You would be reminded again after 6 months or a year.If you do not respond the gold is melted and auctioned.
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