What is a Gold Overdraft Loan

Learn all about gold overdraft loans: how they work, their benefits, eligibility, and comparison to traditional gold loans.
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Gold loan
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2 mins
15 May 2025

Understanding the concept of a gold overdraft loan

In finance, innovative solutions continue to emerge, catering to diverse needs and circumstances. One such financial instrument gaining traction is the Gold Overdraft Loan. Rooted in the age-old practice of leveraging assets for liquidity, this modern-day financial product combines the stability of gold with the flexibility of an overdraft facility. But what exactly is a Gold Overdraft Loan, and how does it work?

A Gold Overdraft Loan is a credit facility extended by financial institutions against the collateral of gold ornaments or bullion. Unlike traditional loans, where funds are disbursed upfront, this loan operates akin to an overdraft account. Borrowers are granted a credit limit based on the appraised value of their gold holdings, against which they can draw funds as needed. Interest is charged only on the amount utilized, offering greater control and cost-effectiveness.

How does a gold OD loan work?

A gold overdraft (OD) loan is a flexible borrowing option where you pledge your gold jewellery as collateral to get a credit limit. You can withdraw money from this limit whenever needed, instead of taking the full loan amount at once. Interest is charged only on the amount you actually use, not the entire credit limit. This makes it convenient for managing short-term expenses or emergencies. You can repay the borrowed amount at any time, and as you repay, your available credit is restored. During the loan period, your gold is securely stored and insured by the lender. Overall, a gold OD loan offers flexibility and safety while helping you access funds when required.

Features and benefits of gold overdraft facility

 

  • Liquidity without selling: By leveraging gold assets, individuals can access funds without the need to sell their precious holdings, maintaining ownership and potential future appreciation.
  • Flexibility in repayment: The overdraft nature allows borrowers to repay at their convenience, making it suitable for fluctuating financial needs.
  • Quick access to funds: With minimal documentation and appraisal processes, accessing funds through a gold overdraft is swift, addressing urgent financial requirements.
  • Competitive interest rates: Interest rates on gold overdraft loans are often lower compared to unsecured loans, offering a cost-effective borrowing option.
  • Credit score independence: Since the loan is secured against gold, borrowers' credit scores play a minimal role, making it accessible to individuals with varied credit profiles.
  • Enhanced financial planning: The revolving nature of overdraft facilities empowers borrowers to manage cash flows efficiently, aligning borrowing with their financial goals.

 

Gold overdraft loans vs. traditional gold loans

Gold Overdraft Loans

Traditional Gold Loans

Nature

Operates like an overdraft account, allowing borrowers to withdraw funds as needed within a pre-approved limit.

Interest

Charged only on the amount utilized, offering cost-effectiveness and flexibility.

Repayment

Flexible repayment options, allowing borrowers to repay at their convenience, aligned with their cash flows.

Documentation

Minimal documentation and appraisal processes, enabling quick access to funds.

Credit Score Impact

Minimal impact on credit scores since the loan is secured against gold assets.

Ownership of Gold

Retains ownership of pledged gold, allowing borrowers to benefit from potential future appreciation.

 

Differences between gold loans and gold overdraft loans

Gold loans and gold overdraft loans differ primarily in their disbursement and repayment structures. Here's how they contrast:

1. Disbursement method:

  • Gold loans provide a lump sum amount upfront based on the value of the gold collateral.
  • Gold overdraft loans offer a credit limit against the gold collateral, allowing borrowers to withdraw funds as needed, up to the approved limit.

2. Repayment structure:

  • Gold loans follow a fixed repayment schedule with regular EMIs until the entire principal and interest are repaid.
  • Gold overdraft loans offer flexible repayment options, with interest charged only on the withdrawn amount, and repayment can be made at the borrower's convenience within the agreed tenure.

Eligibility criteria for gold overdraft loans

  • Possession of gold ornaments or assets meeting purity standards.
  • Applicant must be of legal age (usually 18 or 21 years).
  • Proof of identity and address.
  • The gold should be free from any encumbrances.
  • Adequate repayment capacity demonstrated by income or assets.
  • Loans against gold interest rates are competitive and subject to market fluctuations.

How to avail gold loan with Bajaj Finance?

Availing a gold loan with Bajaj Finance is a straightforward process designed to offer convenience and flexibility to borrowers. To initiate the application, visit the nearest Bajaj Finance branch or apply online through their website. Here's a step-by-step guide:

  1. Click on ‘APPLY’ to open our online application form.
  2. Enter your 10-digit mobile number and click on ‘GET OTP.’
  3. Submit the OTP to verify your identity.
  4. Select your state and city to find the branch nearest to you.
  5. Enter your full name and date of birth as per your PAN.
  6. Set up your appointment at our branch.

Once done, you will receive a call from our representative to confirm your appointment and guide you on the next steps.

When applying, it's essential to inquire about the loan against gold interest rate to understand the cost implications accurately. Bajaj Finance offers competitive interest rates, ensuring affordability and value for borrowers seeking financial assistance against their gold assets.

Bajaj Finserv app for all your financial needs and goals

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Disclaimer

1. Bajaj Finance Limited (“BFL”) is a Non-Banking Finance Company (NBFC) and Prepaid Payment Instrument Issuer offering financial services viz., loans, deposits, Bajaj Pay Wallet, Bajaj Pay UPI, bill payments and third-party wealth management products. The details mentioned in the respective product/ service document shall prevail in case of any inconsistency with respect to the information referring to BFL products and services on this page.

2. All other information, such as, the images, facts, statistics etc. (“information”) that are in addition to the details mentioned in the BFL’s product/ service document and which are being displayed on this page only depicts the summary of the information sourced from the public domain. The said information is neither owned by BFL nor it is to the exclusive knowledge of BFL. There may be inadvertent inaccuracies or typographical errors or delays in updating the said information. Hence, users are advised to independently exercise diligence by verifying complete information, including by consulting experts, if any. Users shall be the sole owner of the decision taken, if any, about suitability of the same.

Frequently asked questions

Can I convert my gold loan to a gold overdraft loan?

Yes, many financial institutions offer the option to convert a traditional gold loan into a gold overdraft loan. To convert, inquire with your lender about the process and eligibility criteria. This conversion allows you to enjoy the benefits of flexibility and cost-effectiveness offered by a gold overdraft facility.

Are there any tax benefits for gold overdraft loans?

Gold overdraft loans typically do not offer any tax benefits, as the interest paid on such loans is not eligible for tax deduction under the Income Tax Act. These loans are primarily secured against gold assets and are considered a form of secured borrowing rather than investment.

Who is eligible for an overdraft loan?

Eligibility for an overdraft loan typically requires a minimum age of 18 or 21 years, possession of a bank account, a stable income source, and a good credit history. Lenders may also consider factors such as employment status, financial stability, and the purpose of the loan.

How is the interest calculated on a gold overdraft loan?

Interest on a gold overdraft loan is typically calculated on the amount utilised, not the total credit limit. It's computed daily based on the outstanding balance. The interest rate is predetermined by the lender and applied to the borrowed amount, offering cost-effectiveness and flexibility to borrowers.

Can I obtain an overdraft against gold?

Yes, you can obtain an overdraft against gold by pledging your gold jewellery as collateral, which offers flexible access to funds with interest charged only on the amount used. However, Bajaj Finance does not offer this overdraft facility against gold at present.

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