Deepa Gopalan
ET Intelligence Group

Banks are aggressively targeting the retail consumer. As a result, taking a loan has become quite common for housing, cars, consumer durables and the list is only expanding. Now, a loan can be had for buying gold too!

Currently, gold prices are in the midst of a rally and have been touching new highs after crossing the Rs 6,000 per 10 g mark. With the wedding season around the corner, there's bound to be a jewellery-buying spree. Until a few months back, you could either borrow on your credit card or take a personal loan, paying a high rate of interest, to fund your wedding purchases. But recently, banks have carved out a separate category where you can take a loan to buy jewellery, and that too, at a lower rate of interest compared with personal loans or credit card interest.

Currently, Corporation Bank, State Bank of Hyderabad (SBH) and Karnataka Bank offer these loans, which are given to working women as well as housewives. In case of housewives, usually, the husband has to act as a guarantor.

The minimum amount of loan that you can take is Rs 10,000 to Rs 20,000 while the maximum can vary between Rs one lakh and Rs three lakhs, depending on the bank from which you take the loan. Requirements for security or guarantor vary from bank to bank. For Corporation Bank, if you are employed, you will have to give an undertaking from your employer to deduct monthly equal monthly instalments (EMIs). Additionally, as a collateral, you will need to provide tangible securities like NSC, KVP, etc.

In case of non-working women, collaterals will have to be provided. For SBH, working women must provide post-dated cheques or an undertaking similar to that for Corporation Bank. As for housewives, a guarantee of the husband would have to be provided. Karnataka Bank, in turn, calls for pledge of ornaments in case housewives take the loan. No security requirement is prescribed for working women.

As for the margins, while SBH has no margin requirement, Corporation Bank has a margin requirement of 15 per cent of the cost of jewellery. In case of Karnataka Bank, a margin of 30 per cent will be kept for jewellery and 50 per cent for gold bars.

The loan also provides for easy repayment by way of EMIs. The repayment period is lowest in case of SBH at 36 months; Karnataka Bank offers a repayment option of up to 84 months and Corporation Bank allows repayment in 60 months.

The next most important aspect is the interest rates. Corporation Bank offers the loan at an interest rate of 11 per cent. However, if you are unable to provide any security, the interest will be jacked up to 12.25 per cent. If you take a loan from SBH, you will pay interest at 13 per cent per annum, while in the case of Karnataka Bank, it would be 11 per cent. But apart from the interest rate, what you must look out for are service charges or processing fees. While there are no such charges in case of SBH and Karnataka Bank, Corporation Bank charges 0.5 per cent of the loan amount on loans exceeding Rs 50,000 as service charges.

With these loans available now, there is no need to press the panic button if you run short of funds to buy that prized wedding ring. Help is just a call away.

The Perfect Setting
Suppose you have to purchase jewellery of say Rs 50,000. In case there are margin requirements, say at 15 per cent, you will get a loan for Rs 42,500. Suppose you decide to repay the loan in 36 months, at an interest rate of 11 per cent, you will have to pay an EMI of Rs 1,391. If you repay over 48 months, the EMI would work out to Rs 1,098. The longer the repayment term, the smaller will be the EMI. But at the same time, the total interest burden would increase. For instance, for a 36-month loan, the total outflow works out to Rs 50,076 while in the case of a 48-month loan, the total outflow works out to Rs 52,704. So by paying an extra EMI of around Rs 300 per month, you can save on interest costs of up to Rs 2,628. This, however, would depend on your capacity to repay the loan.

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