Gold mortgage loans or gold loans have become a common financial solution for those with lower credit scores. It allows an individual to leverage their jewellery in exchange for quick funds. However, there are specific questions and concerns associated with this loan type. The most common is if the financial institution or bank replaces the mortgaged jewellery.
This article discusses jewellery mortgage loans and the relevant rules and regulations to address this concern.
A Quick Overview of a Gold Loan
A gold loan entails taking a loan by mortgaging your gold jewellery as collateral to the financial institution. Generally, the gold value pledged is higher than the offered loan amount. The latest regulations by the Reserve Bank of India state that banks and financial institutions need to comply with specific rules when granting gold loans.
No bank or financial institution can offer loan amount that is more than 75% of the gold value submitted as collateral.
Key benefits of a gold loan include:
- Minimal documentation
- Quick disbursal of funds
- Low interest rates
Gold Mortgage Process: Assessing the Scope of Replacement
Gold loans work by using your gold jewellery as collateral for the loan period. Banks typically accept only gold jewellery. The first step involves the bank or financial institution checking the purity and value of the gold jewellery. Usually, anything between 18k and 22k is accepted.
Even though precious stones may have high value, they are generally not considered in the loan calculation. Only the gold content is valued. This process ensures that the loan amount corresponds to the gold's worth, making it a secured loan.
In a mortgage gold loan, the financial institution keeps the gold articles in a vault within a secure, strong room, ensuring they are well-guarded. This means you can be confident of receiving the exact same items back once the loan is repaid. Legally, the bank or financial institution must return your original gold after successfully repaying the loan.
Ensuring the Mortgaged Jewellery is Not Replaced
You can ensure that your mortgaged jewellery is not replaced in two main ways:
- At the time of the jewellery mortgage loan closure, you must verify the gold count, condition, and weight with the previously provided appraisal certificate.
- Only when you confirm that everything is right and it is your gold, the articles will be handed over. If any damage or discrepancy is found, you have to register a complaint and wait for resolution.
Legal Protection Against Mortgaged Jewellery Replacement
The Reserve Bank of India regulates the jewellery mortgage loan market in the organised sector, setting guidelines for banks and NBFCs to follow. These guidelines are developed to ensure your jewellery is not replaced and kept secure. The entire jewellery mortgage in gold loans process is transparent during appraisal. It also adheres to fair lending practices.
However, the unorganised sector, which accounts for a significant portion of the gold loan market, remains largely outside the purview of strict regulation. There have been calls for stronger regulatory oversight in the unorganised sector to address the issue of jewellery replacement.
What if A Gold Loan is Not Repaid?
Several consequences follow if a gold or jewellery mortgage loan is not repaid:
- Initially, the financial institution imposes late fees and penalties, which can quickly accumulate and increase your overall debt.
- Additionally, your credit score takes a hit, making it harder to secure future loans.
- If the default continues, the situation escalates. The financial institution may send legal notices or a recall demanding repayment.
- If the borrower still fails to repay, the institution has the right to auction the gold jewellery pledged as collateral. This auction aims to recover the outstanding loan balance, including any additional charges incurred.
The process underscores the importance of timely repayment to avoid legal and financial repercussions.
Conclusion
At a time when jewellery mortgage loans are gaining traction as an effective way to acquire funds, the issue of jewellery replacement in gold loans is a serious concern that needs to be addressed. While the organised sector is subject to regulatory oversight, the unorganised sector remains vulnerable.
Borrowers must be knowledgeable and choose financial institutions with a proven track record of ethical conduct. Awareness and education can empower consumers to make informed decisions and protect their assets.
FAQs
1. What is a jewellery mortgage?
A jewellery mortgage, sometimes referred to as a jewel loan or gold loan, is a type of secured loan that lets you borrow money using the gold items in your possession as security. The financial institution keeps your gold, charges you interest, and then gives it back to you when the loan is repaid.
2. How does a gold mortgage work?
When you apply for a gold mortgage loan, the gold is taken as collateral for the loan tenure. Interest is charged. Once you repay the loan, the bank returns your gold. Most banks give a maximum loan-to-value ratio of 75%. The loan amount is based on the purity and current market worth of the gold.
3. What is the gold mortgage rate?
In India, interest rates on gold loans range from 9.9% to 27% annually. The purity and market value of gold impact interest rates. For instance, the value of 22-carat gold is higher than that of 18-carat gold, and the interest rate will be lower.
4. Can a bank replace my mortgaged gold?
Legally, any bank or financial institution cannot replace your mortgaged gold or jewellery. This is a common concern, but most institutions take proper measures to ensure nothing of the sort happens. You can also verify the full details of the gold after the loan is resolved to check for any discrepancies.
