How does a gold loan work in South Africa and is it worth it?

17 AUGUST 2023

In South Africa, not everyone is eligible for loans like personal loans, however anyone with gold can obtain a gold loan. Here’s how it works.Man smiling, holding a key with a house key chain in the airNot everyone qualifies for the likes of a personal loan in South Africa, but anyone who has gold can get a gold loan. For this reason, gold loans are fast becoming a popular alternative vehicle to get credit. But what is a gold loan exactly, how does it work, and is it really a good option for those times when you need credit?

Before we can delve into this sensibly, it is important to understand that there are generally two main categories under which all loans can be classified, namely unsecured loans and secured loans. With a secured loan, the lender requires you to back your loan by offering up something of value that you own (known as “collateral”), such as a house, car, or business equipment. With an unsecured loan such as a personal loan or credit card, you don’t have to offer up any collateral.

In practice, an unsecured loan comes at a much greater risk to the lender, which is why the eligibility criteria are also so much stricter. So, considering you offer up your gold as security or collateral, a gold loan naturally qualifies as a secured loan, for which the application processes are not nearly as extensive as that of an unsecured loan.

What qualifies as “gold” for a gold loan?

This may differ from lender to lender, but they usually accept gold items or jewellery of 18 to 22 carats or higher. Most lenders in South Africa will consider Krugerrands, Mandela medallions, or gold coins as collateral for a gold loan as well, provided the coins are 99.99% pure and they don’t weigh more than 50 grams. Some lenders will also accept pure silver and platinum or real diamonds and antique jewellery.

How does a gold loan work?

Application for a gold loan in South Africa consists of four simple steps:

  1. You apply: You fill in the application form, attach the requested documentation and submit it to the lender, together with your gold.
  2. The details get verified: The bank or lender checks the purity of your gold, weighs your gold and verifies that you’re indeed the legal owner of it.
  3. The paperwork gets drawn up: The bank or lender calculates what your gold is worth and how much they’re willing to lend you. The loan contract is then drawn up accordingly.
  4. You get your cash: The final go-ahead is provided. You sign the paperwork and the agreed loan amount gets transferred to you.

Based on this, you can see that an application for a gold loan actually works exactly like that of any other secured loan. The only difference is that the security you offer up is gold and not conventional collateral, such as property, vehicles, or business assets.

What documents must I submit with my application for a gold loan?

Compared to other types of loans, the documentation you need to submit for a gold loan is minimal. Typically, most banks or lenders in South Africa require you to submit your ID, proof of address, and two photographs with your application form. Because the lender keeps your gold as security, they don’t conduct extensive background checks and they don’t examine all the usual factors, such as age, credit score, and income.

How much credit will my gold get me and how does repayment work?

The credit for which you qualify is determined by a loan to value (LTV) ratio. Subject to the lender, this ratio could go up to a maximum of 80% of the market value of the gold you’re offering up as collateral. You will then have to pay back the full loan amount with interest as specified in the loan contract, after which you will get your gold back. Again, repayment terms will be subject to each lender’s own specific terms and conditions, but most lenders only let you pay the interest each month, while the principal amount only becomes payable at the end of the loan tenure.

What are the key benefits of gold loans in South Africa?

Life happens and, for various reasons, you may not always meet the criteria for an unsecured loan like a personal loan or a credit card, or you may not have the time or the inclination to go through the usual loan rigmarole. Either way, gold loans provide you with a way to turn your gold into cash, quickly and easily. At the same time, you get flexible repayment terms. As long as you stick to these, you can still hold onto your gold. Here is another way to get cash instantly.