Most Indians have a fondness for gold. And it is not just for ornamental purposes. Many use it for investment too. It is an asset they think they can always rely upon in case of any needs. Fair enough. In an earlier post on gold loans, I had discussed how you can use your gold to take out a quick loan. Gold loans are short term loans, with most banks and financial institutions limited to tenure of 12 months. In this post, I will discuss various features of gold loan product from Axis Bank.
How to apply for Axis Bank Gold Loan? You need to visit the Axis Bank Branch with your gold/jewellery and the requisite documents. I am not sure if the gold loan facility will be available at all the branches in India. Axis Bank has provided the list of such branches on the FAQ page for the loan. Even though you can apply for the loan online or by calling up the customer care, I believe it will still require a visit to the branch.
What Are the Documents Required to Apply for Axis Bank Gold Loan?
As per the bank website, you need to provide (along with gold) the following documents:
- Signed application form
- ID proof, Address Proof and Signature proof
- PAN Card (Form 60 if you don’t have the PAN card)
- Age Proof
- Post-disbursement documents, if any
You can see the bank has not sought any information about your income. Frankly, they don’t need to. They have your gold (as security). In addition, the gold loans are short term and have an upper cap of Loan-to-value ratio of 75%. This should take care of both loan repayment and volatility in gold prices.
Who can apply for the Gold Loan? Anyone aged between 18 to 75 yeaRs
What are the maximum and minimum loan amount? Minimum amount is Rs 25,001 and the maximum loan amount is Rs 20 lacs.
How much loan can I get under Axis Bank Gold Loan scheme and what is the loan tenure? Clearly, it depends on the value of gold that you are willing to put as collateral. RBI, in its circular dated July 22, 2014, has capped the Loan-to-Value ratio for gold loans at 75%. This is applicable for all gold loans. Please understand the bank or gold loan NBFCs can always choose a lower LTV due to their credit guidelines. There is no mention of LTV on Axis Bank Gold loan page. Axis Bank FAQ page also mentions verifying your repayment ability. However, if you check the documentation requirement, they have not asked for any income related documents (salary slips, Income Tax returns etc). As per bank website, you can avail gold loan for tenure ranging from 6 to 36 months. Tenure for bullet repayment loans is capped at 12 months (as per aforementioned RBI circular).
What rate of gold shall be considered? As per RBI circular dated January 20, 2014, security (gold) has to be valued at the average of closing price of 22 carat gold for the preceding 30 days as quoted by Indian Bullion and Jewellers Association Limited. If the gold is of lesser purity, the gold shall be valued proportionately. Axis Bank does not mention about the gold valuation technique used. It is fair to assume that they will comply with RBI guidelines. If the bank wants to offer you lesser loan amount, it can always consider a lower LTV. Interestingly, the aforesaid RBI circular does not mention higher purity gold (i.e. 24 carat gold). Will you be eligible for a higher loan amount if you have 24 carat gold (mostly in form of gold coins)? I am not sure. No information about this on Axis Bank website either. However, on the ICICI Bank Gold loan eligibility calculator, it shows a higher value for 24 carat gold.
Can I get loan against Gold Coins too? Yes, you can take loan against gold coins too. However, the maximum limit is 50gms (for gold coins) per customer.
What is the loan interest rate on offer? Currently, Axis Bank is offering loans at 14.5% to 17% p.a.
What are the charges other than the loan interest rate? You will have to pay processing fee of 1% of the loan amount. In addition, there are valuation charges of Rs 500. As per the bank website, there are no charges for loan foreclosure or part prepayment. Minimum pre-payment amount is Rs 10,000. If you are late on payments, be prepared to pay penalty of 2% per month. All the charges are subject to GST. For the updated list of charges, please refer to the fee and charges page for the gold loans.
What Are the Different Options for Loan Repayment?
Axis Bank provides you three options under its Gold Loan Scheme.
- Monthly interest payment and principal repayment on maturity date (bullet repayment)
- Upfront interest payment and principal repayment on maturity date
- EMI option (both interest and principal are paid on a monthly basis)
As I understand, the tenure under the first and second option will be capped at 12 months. For third method, the tenure can be higher. Additionally, as per RBI circular dated July 22, 2014, for the purpose of calculation of LTV, the credit institution must consider accrued interest too. Therefore, it is quite possible that loan eligibility may also be lower under the second method. Additionally, on the FAQ page, it is mentioned that the bank calculates only simple interest (and not compound interest) for all loans. In such a case, I believe the rate of interest may be different for the three kinds of repayment methods. Clearly, the quoted rate of interest will be the highest for the first payment method.
How quickly can I access the loan? This is where gold loans fare quite well. If you have the gold and the documentation ready, you should get the loan quite quickly. Axis Bank website mentions the same day.
Product Comparison (ICICI Bank Gold Loan)
|Features||Axis Bank Gold Loan||ICICI Bank Gold Loan|
|Eligibility||18 to 75 years||18 to 70 years|
|Minimum Loan Amount||Rs 25,001||Rs 10,000|
|Maximum Loan Amount||Rs 20 lacs||Rs 15 lacs|
|Loan Against Gold coin||Yes. Up to 50 grams||Yes, against 24 carat coins issued by banks only. Up to 50 grams|
|Loan Tenure||6 to 36 months||6, 12 months|
|Rate of Interest||14.5% to 17% p.a.||10% p.a. to 16.10% p.a.|
|Processing Fee||1% of the loan amount||1% of the loan amount|
|Valuation Charges||Rs 500||Not provided on the website|
|Foreclosure charges||NIL||Upto 1%|
|Pre-payment Charges||NIL||Not provided on the website|
|Penal Interest||2% per month on overdue amount||6% p.a.|
|Repayment options||Monthly Interest (bullet repayment), Upfront Interest or EMI||Bullet Repayment|
Point to Note
There won’t be much difference between gold loan products from various banks and NBFCs. With a short loan tenure, I believe there is not much scope for innovation. To be honest, you should always be wary of innovation in loan products. Focus on the loan eligibility, interest rates and flexibility in repayment/prepayment. Since there could be multiple repayment options, you need to look beyond the quoted interest rate for comparison.
And yes, don’t ignore your repayment ability. Unlike home loans, it is fairly easy for the banks to dispose off your gold. i.e., it is quite easy to sell. Since the loan is short term, you need to see if you can repay the loan. Your monthly cash flows may not improve in a year. Penal interest for late payments is quite high too. If the repayment ability is in doubt, it may be a better idea to sell the gold/jewellery rather than taking loan against it. At least, you will save on the interest amount.
Disclaimer I have relied on the information available on the bank website for this post. It is quite possible that the information may not be updated or my assessment of the information shared may be incorrect. Therefore, before making a commitment, you are advised to call up customer or visit the nearest bank branch to understand the gold loan product better.