Thinking of using all that gold jewellery lying idle in your locker, to take a loan? Well, going by the number of banks as well as non-banking financial companies (NBFCs) offering easy loans against gold these days, you are not the only person thinking along those lines.

In fact, the last few weeks I have been travelling in the southern part of the country, everywhere I look I see mostly two kinds of placards and billboards. While one prompts you to buy gold jewellery from the advertised shops (I really do not know how people can still afford to buy gold at the current rate), the other urges you to use the gold in your possession to take a loan.

But before you give in to the second kind of advertisement, I would suggest that you go through the master circular on fair practices code released by Reserve Bank of India in the first week of July. It will help you understand and protect your rights better and also deal better with those giving you those loans.

The master circular, which is a compilation of all the instructions issued by the regulator (RBI) to non-banking financial companies to date (June 30,2012), tells you what your entitlements are vis-à-vis the loan agreement. For example, it tells you that all NBFCs have to work out the rate of interest in a transparent manner. Also, the rationale for fixing the interest rate and its calculation should be disclosed to the borrower.

In case of default requiring auctioning of the jewellery, adequate notice has to be given to the consumer. The regulator lays down detailed procedure for such auction.

So when you opt for a loan from a non-banking financial company (even if it is a vehicle loan or a personal loan), be sure to look up the RBI guidelines put together in this master circular.

I would also suggest that you first get the jewellery weighed and valued independently by a certified valuer. This will help you when the jewellery is valued by the lender or the NBFC. Even here, insist on a certified valuer assessing the value of the jewellery and issuing a valuation certification, giving the description of the jewellery, its weight and its valuation. And be absolutely sure about the track record of the NBFC.

Always get in writing all the terms and conditions governing the loan agreement. And demand a copy of all the documents signed by you. Read the terms and conditions carefully and take an informed decision.