Fees, Charges and Penalty Associated with Gold Loan
By Anupama Deshpande | May 03, 2018

Gold Loan is a loan which is offered to you against gold deposited by you with banks or any other lender. Idle gold jewellery can be used as a pledge for availing gold loan. Gold loan is a secured loan and thus is available at lower interest rate than personal loan. It is considered as one of the best options for short-term borrowing.

Different charges have to be paid by the individuals to avail of any loan from a lender that may be a bank or any financial institution. Gold Loan is no different.

Lenders offer gold loan of up to 75% to 80% of the gold value, after checking its quality, purity and prevailing market price.

Interested to know Education Loan Vs Personal Loan

When you avail a gold loan, you don't have to pay just EMI but there are various other fees, charges & penalty associated with gold loan. Following are the details of all such charges that a gold loan borrower needs to pay:

It is the rate of interest charged by the lender for extending gold loan. It varies from lender to lender. Gold loan interest rate are generally be quoted on annualized basis. Interest rate may be fixed or floating. In case of fixed rate, the rate of interest remains fixed for the whole tenure of the loan and in case of floating rate, the rate of interest is linked to Marginal Cost of Funds based Lending Rate (MCLR), which keeps changing along with the change in MCLR rates of the lending institutions.

It is a fee charged by the lender towards processing of gold loan application. It is charged differently by different lenders of gold loan. It is generally a fixed percentage of loan amount. Some lenders keep some minimum amount of processing charges, for example Rs. 2,500 or 1.50% of loan amount, whichever is higher. It is generally taken upfront from the borrower. It is a non refundable amount. Charges may vary based on the quality & purity of gold e.g. BIS Hallmarked Jewellery, Ornaments and Specially minted Gold Coins sold or Non Hallmarked Jewellery/ Ornaments.

It is charged from the borrower for completing documentation formalities to avail gold loan such as getting gold loan agreement signed, activating ECS mandate for gold loan EMIs and other such documentation.

Interested to know Why Select Debt Fund over Bank Fixed Deposit : 10 reasons

A valuation of gold jewellery or ornament is conducted by the authorised professional valuer of the lenders to assess the real value of gold against which the loan is to be provided by the lender. The borrower needs to pay the valuation fee to cover the cost of preparing valuation report by such valuer.

Some states like Rajasthan, Karnataka, etc. levy stamp duty which is a fixed percent of pledge value. The borrowers from such states need to pay the stamp duty for availing gold loan.

Sometimes, the borrower wants to repay the whole outstanding loan amount before completion of the original loan tenure, if his/ her budget allows. In such cases, lenders levy Prepayment/ Foreclosure penalty. It is charged in order to discourage prepayment of the loan.

Suggested reading Become a Crorepati in the age of 40 the secret revealed

In case, the borrower makes part loan prepayment, then the lender may levy part payment charges on him/ her. Some lenders do not charge anything in case of part payment.

In case, the borrower misses paying the EMI payment by the payment due date or deadline due to any of the reasons, he/ she is charged late payment penalty by the lending institution. In order to avoid late fees, borrower has to ensure that he/ she pays EMI timely.

If the post dated cheque or ECS mandate is rejected and amount is not received by the lender on due date, borrower is charged with dishonour charges per such instance.

Suggested reading Why Should not You keep All Your Money in Banks Savings Account

It is a charge that is to be paid by the borrower towards replacement of post dated cheques (PDCs) or change of ECS request due to change of borrower's bank. It is usually a fixed amount say Rs 500 or Rs 1,000 per instance.

This charge is associated to delinquent accounts. A fixed amount e.g. Rs 1,000 is charged where a notice has been delivered at the communication address and a paper publication is required.

The borrowers have the option to renew his/ her existing gold loan with the lender. On such occasions, renewal fee is charges by the lender for getting the gold loan renewed for further term. The charge varies depending on the loan amount. While renewing the loan, it is to be kept in mind that the borrower may need to pledge additional gold, if the market price of gold has fallen.

Suggested reading Top 10 Benefits of Education Loan over other Conventional Loans