Gold Loan Frauds On The Rise: Common Scams And How Borrowers Can Stay Safe

Gold loans have become significantly popular in recent years. The demand for gold loans is skyrocketing because gold is easily available and is one of the most trusted metals in India. Gold loans provide hassle-free instant cash-flow solutions during emergencies without any prior approval.

Despite its popularity and usefulness, gold loan fraud has also been increasing at an alarming rate. Rising gold prices have made buying gold even more difficult for many people. Therefore, borrowers are utilising their existing gold assets more these days. As a result, unscrupulous lenders are taking advantage of gullible borrowers by hook or crook.

Fake gold loan lenders, unethical valuation of gold jewellery by the lender, and fake documents provided by lenders are some of the scams that cause severe financial and mental loss to borrowers. To avoid falling prey to such fraud, it is important for borrowers to know about different fraud types.

Different Types of Gold Loan Frauds

Fake gold loans: Fake gold loans or loans taken against fake gold are one of the most common types of gold loan fraud. Here, the borrower approaches the lender with fake jewellery made up of non-existent or low-quality gold or approaches a corrupt valuer who seals the gold as real.

Misappropriation of gold: Gold misappropriation or identity theft is another crime that has seen an upward trend these days. Some gold loan companies or their employees substitute the original gold provided by the borrower with fake gold after the loan amount is approved. They might even sell it out.

Financial experts say identity theft is increasing these days, and gold loans are no exception. Identity documents can be stolen or forged to apply for gold loans in the name of someone else. Many victims only realise their gold has been stolen when they receive a recovery call for a loan they never applied for.

Unauthorised gold loan companies: With increasing demand for gold loans, several fraudulent companies have sprung up offering quick loans against gold. These fraudsters trick people into buying their services and either vanish with the gold provided by the borrowers or charge high-interest rates, making it difficult for borrowers to get their gold back.

Online gold loans fraud: Just like other online loan frauds, with the introduction of online gold loans, there has been a rise in fraudsters creating websites and apps that seem like legitimate gold loan companies but are actually created to target customers.

How To Protect Yourself Against Gold Loan Frauds?

Check your lender’s credentials: Before you pledge your gold jewellery for a loan, check if the lender is registered under any housing finance company or any other financial institution.

Get your jewellery assessed in person: Conduct an in-person verification of your gold jewellery. Make sure that the lender does not force you into any online verification of your gold.

Protect your identity: Gold loan forgeries can happen when your identity has been stolen. Always protect your identity cards and documents, and report them to the authorities if you feel your identity has been stolen. This will ensure that no loans are approved in your name.

Maintain a document trail: Create a file for all the necessary documents that are generated when you apply for a gold loan. This includes the appraisal certificate given to you by the lender, the loan receipts, and the loan agreement. In case a fraud occurs, you can use these to prove your legitimacy.

Don’t fall for quick cash offers: Gold loan fraudsters will trick you into lending your gold very quickly without even verifying your documents. Don’t fall for their tactics and stay patient. The Reserve Bank of India (RBI) has mandated KYC norms for all NBFCs offering gold loans. As per RBI norms, all NBFCs dealing in gold loan transactions must conduct periodical audits of their gold loan portfolio to check fraud.

Report the fraud to the financing company you applied to for a loan from as well as to the authorities to avoid further loss. If caught in time, the crime can be stopped from happening further.