To many investors, a Sovereign Gold Bond (SGB) appears to be a convenient investment avenue that helps avoid the security concerns of owning physical gold. Beyond its value as an investment, SGBs also provide financial flexibility, as many banks offer loans against them. While pledging, you can offer them in either physical or demat format by contacting any branch of a designated bank.
In this blog, we will walk you through a comprehensive guide on loan against sovereign gold bonds, highlighting things you must know before applying.
What Is a Loan Against Sovereign Gold Bonds (SGBs)?
A loan against sovereign gold bonds acts as a funding option that enables the bond owner to get a loan pledging their SGB investments. It appears as a reasonable solution when you require emergency funds and do not want to sell your investments or assets. The interest rates on loans against sovereign gold bonds are often lower than those of unsecured personal loans, due to the government backing feature of SGBs, which minimises the risk for lenders.
What Are the Key Features of a Loan Against Sovereign Gold Bonds?
Below are some important features of the SGB loan scheme that you must be aware of before applying for this secured loan.
- The minimum loan amount for individual borrowers is ₹20,000, though this amount may vary depending on the lender’s policies.
- The loan margin is set at 75% of the prevailing market value of SGBs.
- Loan processing fee is usually 0.50% of the borrowed amount along with applicable service tax.
- You have to pay the loan interest monthly.
- The principal can be repaid before or upon the term’s end.
- Generally, you have to serve a tenure of 36 months in case you opt for an overdraft facility against your SGB investment.
Who Is Eligible to Apply for a Loan Against SGB?
The SGB loan eligibility criteria can vary from one lender to another but more or less you can notice some key criteria. Most financial institutions and banks only accept borrowers who reside in India, either self-employed or salaried. All they must have are pre-existing SGB investments.
Next, the applicant has to be at least 18 years old and must pass the minimum income threshold as specified by the particular lender. Additionally, the financing authority verifies the loan applicant’s credit history and scrutinises their credit reports to get an idea about existing liabilities. Despite being a secured loan, a good credit score can enhance loan approval prospects and potentially reduce the interest rate charged.
What Are the Documents Required for Loan Against SGB?
Take a look at the list of documents that you need to submit while applying for a loan against sovereign gold bonds:
- Identity proof of the bondholder (Aadhaar Card/Driving License/Voter ID Card)
- Address proof of the applicant (Passport/Utility Bills)
- Income proof of the applicant (Bank statements/ITR/salary slips)
- PAN Card or Form 60 in case PAN is not allotted
- Bond certificate from the issuing authority
- 1 recent photograph attached with the filled-up loan application form
How to Apply for Loans Against SGBs?
You have to first find a list of lenders who offer secured loans against sovereign gold bonds. Next, you must visit their websites and compare the interest charged and the required eligibility criteria. Once you decide which lender you are going to go with, consider following these steps:
Step 1: Visit the respective bank’s branch or open their official portal to fetch the SGB loan application form.
Step 2: Provide the necessary documents like your ID proof documents, address proof (any utility bill) and ownership evidence declaring that you own gold bonds.
Step 3: Wait for the lender’s approval. In this stage, they verify your application details, assess the value of the collateral and analyse the documentation.
Step 4: You receive the requested loan amount in your registered bank account.
Note: Some lenders may not provide the online loan-seeking option. Thus, you should get in touch with the bank officials before proceeding.
Final Word
If you want a loan for personal use then sovereign gold bond loans are a great option compared to traditional loans as they are offered at cheaper rates. Besides a high loan-to-value ratio, these loans offer increased flexibility allowing one to continue to benefit from their bond investments. Therefore, you can avail a loan against sovereign gold bond from your trusted banking partner to resolve prevailing liquidity issues.
Frequently Asked Questions
The exact interest rate charged for a loan against SGB depends on your creditworthiness and the lender’s specific policies.
You can repay the borrowed amount over 60 months if you opt for a secured term loan against SGBs.
SGBs have an 8-year maturity period. Investors can redeem or encash them early after 5 years. They can also sell the bonds on the secondary market, provided they are listed from the date specified by the RBI.
