Gold Loan as a Viable Option to Consider this Year
Using gold as collateral to receive money has been present in India for several decades. Most households use this loan to meet certain expenses like health, illness, education and marriage. Businesses used a gold loan scheme to fund operational requirements. The demand for loans on gold has been increasing over the years. In the last year, the need for gold loans has grown in response to the economic impact of the Covid-19 pandemic.
Last August, to reduce the impact of the pandemic, the Reserve bank of India increased the loan to value ratio for the loan on gold till March 31st 2021. The increased need for cash and higher gold prices increased the demand for a loan on gold. Many consumers preferred to pledge their gold as collateral and fund their needs.
The world gold council expects the outstanding gold loans to grow to ₹4051 billion in FY21 from ₹3448 billion in FY20. The report says that technology has been a critical enabler in spreading the reach of the gold loan business.
Let us look at a few reasons as to why a gold loan is a viable option to consider this year:
- Time is always considered money. During a pandemic, when life becomes uncertain, it is even more difficult to wait for the money. Especially to wait for a loan that will help you pay for medical expenses that might arise. When you apply for a loan, you cannot afford to wait for a long time to receive this money. For instance, the effects of the pandemic need to be treated immediately, and for that treatment, immediate funds are required. While it might take longer to receive other loans, a loan on gold can be availed almost instantly. All it takes iS a matter of few minutes. The lender would consider pledging your most valuable asset as collateral and wouldn’t hesitate to give you the money immediately. Taking out a gold loan is simple and easy, and the documentation required is very minimal.
- As the borrower uses gold as collateral, the interest rates on a gold loan scheme are comparatively lesser than those on other loans. While other business loans take the borrower’s credit history and credit score into account, you can avail of a gold loan even with a poor credit score. That is because you are willing to pledge gold, and the borrower’s confidence in you goes up. Thus you might be offered a better deal in interest rates than other loans.
- Over the last year and through the pandemic, the prices of gold have been rising. India is a county that will keep consuming gold. This asset whose value keeps increasing. People will keep buying jewellery as it is auspicious and has a vast cultural significance. As the value of the asset increases, the amount of money offered as the loan amount also will increase.
- The gold loan market keeps growing. According to the world gold council report, the organised gold loan market is expected to be at an annual rate of 15.7% to ₹4.61 lakh crores in FY22.
- The options to repay a gold loan is flexible. You could use a bulk repayment option, including the interest and the entire loan amount at the time of maturity of the loan period. Or you could make an upfront interest where you pay the real interest at the beginning of the loan period or you can pay regular equated monthly installments. This makes it convenient for you to plan for your financial needs and keep the amount needed readily available whenever it is due.
Additional Read: Why Gold is the Perfect Investment for You This Diwali
A loan on gold can help you overcome financial setbacks and uncertainties. Though it has several advantages, you have to make sure that you only borrow from a reputed lender. You should know how much your gold is worth. You should also be sure to read the fine print carefully before accepting the gold loan scheme.
Additional Read: 10 Golden investment rules for first time earners
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