Gold Overdraft Loan: Did you know you can get an overdraft loan against your gold jewelry?

Many people pledge their gold in banks to meet financial needs. Similarly, banks also provide a gold overdraft facility, which works like a credit line rather than a traditional personal loan.

In a regular gold loan, the entire loan amount is disbursed at once and interest is charged on the full amount. In an overdraft facility, the bank sanctions a loan based on the value of your gold. The borrower can draw money anytime and in any amount within this sanctioned limit.

Interest is charged only on the amount withdrawn, not on the full sanctioned limit. These loans are usually valid for one year or more. The loan can be repaid and redrawn as needed.

To avail of a gold overdraft, certain documents must be submitted. Banks typically accept gold jewelry with purity between 18 carats and 24 carats. Based on the required loan amount, the borrower must provide sufficient weight of gold to the bank. Generally, banks sanction 70%–75% of the gold value as the overdraft limit.

Interest is calculated daily, ranging from 8%–15% per annum depending on the bank. Some banks also charge a processing fee, usually between 0.5%–1.5% of the sanctioned limit.

Currently, Federal Bank DGI Gold Overdraft Scheme, CSB Bank Gold Overdraft Loan Scheme, Tamilnad Mercantile Bank (TMB) Gold Overdraft Scheme, and Union Bank of India offer overdraft facilities against gold jewelry.