The banks actually deduct this charge (processing fees) from the actual loan amount being given to the borrower. Hence, lower the processing fee, bigger the loan takeaway.
However, understanding this, some banks give loans against gold for shorter duration only. For instance, HDFC Bank, DCB and Federal Bank give personal loans up to five years, while loan against gold is restricted to 1-3 years duration.
The emphasis clearly is to use gold to meet your short-term needs and at the same time, to reduce the risk of price erosion in the commodity. Warning
Before taking a loan, one must always ask themselves one question, if they would be able to repay the loan, or not. The slightest of doubt will lead to a problem later on. These days, banks respond very harshly to borrowers unable to pay their EMI and the interest charged on it. Not to say that it puts the gold in danger too.
However, if you do know before hand that you won't be able to pay the equated monthly installments, HDFC Bank offers facilities wherein one can repay the entire loan at the end of the tenure.
The customers must also be aware of all those banks which do offer loans against gold. Importantly, not all bank branches offer loans against gold, only those with adequate storage space for the valuable commodity do. The customers are advised to call the helpline number of the bank or check its website for a list of branches offering this facility. ICICI Bank is one such bank which has recently discontinued the practice of giving loans against gold in areas other than in Andhra Pradesh, Tamil Nadu and Kerala.
Hence, if you are in need of money, and loans are your desired pathway, then do your research before taking the plunge. All the best.