Indian’s love for gold in known to the world. We are the biggest importers of gold in the world. Gold is not only the store of value but has also seen good amount of capital appreciation over the decade. Every Indian likes to purchase gold ornament and coins at the time of Diwali or any moment he feels himself financially strong. But did you know that you can use this gold to fund your emergency cash requirements such as medical emergency, child education, business expansion or family holiday. When you are in a dire situation and you need cash then you can use your gold jewellery to fund the emergency cash requirement. There are many banks and non-banking financial companies (NBFCs) who offer gold loans. These loans are one of the quickest and hassle-free ways of getting instant cash. Loan against Gold Ornaments has been designed to provide liquidity against gold ornaments/coins which a customer pledges with the bank or NBFC and that way the customer is not required to sell his gold ornaments at the time of emergency.
Following are the plethora of benefits that gold loan offers.
- Instant loans available on the gold jewellery you own. Lending against gold is safe as the NBFCs or banks can sell the gold in case ones default. The processing time for such loan against gold is lesser and you can expect to get the cash within a few minutes or hours.
- Assured security of your gold jewellery. The onus of the security of the gold lies with the lender. It will remain safe in its vault. One just has to repay the loan amount with the interest and then they can take the gold back.
- High Loan To Value (LTV) is a benefit of loan against gold. Loan amount could be 60-80 percent of market value of gold.
- Since loan against gold is a secured loan hence, the rate of interest is much lower compared to unsecured loans such as personal loan. The interest rates generally range between 12% – 14% in case of Gold Loan wherein it increases to 19%-21% for the personal loans.
- Most of the NBFCs waive off the processing fee for loan against gold. So that’s another relief.
- Since gold loan is a secured loan and the lender posses the physical gold until the repayment with interest, the lender does not require any income proof.
- Many NBFCs do not charge on prepayment. In fact they offer an option to pay interest only against the loan until the borrower pays the principal amount at the time of closing the loan.
- Bad credit history not an issue getting a loan against your gold jewellery. As the gold is used as collateral, the lenders are not worried about the principal component and thus don’t check the credit history of the borrower unlike personal loan wherein the loan is only given upon the repayment capabilities of the borrower and thus the credit history is checked.
Therefore, for immediate financial help gold loan is the best option.
The Gold loans in India have been in existence since centuries, in the form of unorganized institutions such as money lenders and pawn shops, delivering immediate and easy access to loans against gold jewellery, gold coins or gold bars as security. The practice of pawning, redeeming and re-pawning of gold is very prevalent from ages ago. Until a couple of decades ago, the whole market was covered by unorganized private players who would give loan against gold at usurious interest rates. The unorganized players still command almost two-third of the market.
The easy availability of gold in Indian households and the minimum chance of consumers defaulting on loans are making the loan-against-gold market grow in the country. The gold loans market now valued at 7.95-9 billion dollars is set to grow manifold as more financial institutions and banks enter the lucrative business. The gold loan-business in the country has flourished over the past few years. Having its roots in southern India, the business is gradually picking up in other parts of the country also.
According to an estimation of the ICRA Management Consulting Services (IMACS), the organized gold loan-market in India stands at $8 billion USD and is growing at a compound annual growth rate of 40 per cent since 2002. With more financial institutions and banks entering this lucrative and safer business, the industry is set to grow manifold. Private Banks too are cashing in on this trend. The flow of gold in the market will add to economic growth of the country. Since rural India holds 65 per cent of the total gold stock, organized players in the gold loan industry are targeting rural customers to fulfill their requirement for gold.
The Gold Loan Market in India is the biggest market in the world probably due to large demand of gold by the Indians. Every year India imports around 900 tonnes of gold for consumption and it has the largest gold stock of 22000 tonnes which is privately held by domestic households and temples. The low income groups in India are the major customers of gold loan. Century’s old practice of lending money against security of gold has been continuing in India in an unorganized manner. Farmers, peasants buy gold during the months of prosperity and stock it in the form of jewelleries and ornaments and then pledge it to the local money lender or pawn brokers during tough times to meet their financial requirements. This peculiar phenomenon in India has given rise to the gold loan market.
Gold has a certain element of emotional value for all Indians. Taking personal loans against family gold had not been considered as a preferable option till late though the tradition of loan against gold had been in practice since centuries through unorganized money lenders. The value of gold has been on the rise for the last one century uninterrupted and is currently touching unprecedented heights. Thus it makes sense to utilize the power of the gold lying in lockers to avail loans instead of paying higher interest rates for pure personal loans. With banks and other financial institutions entering this space of late there has been a marked increase in personal loans against gold among the Indian middle class.
In this loan one has to deposit the household gold in form of jewelry with the bank or financing agency and get a loan up to 80% of the value of the gold deposited with minimum documentation. Such gold loan is also less time consuming and is a good option for people seeking instant cash for their emergency need.
Wherein, personal loan is an unsecured loan given to the borrower to meet financial expenses without keeping any col¬lateral. It means the borrower of a personal loan does not have to submit any guarantee to the lender. All banks and financial institutions provide personal loans. Normally the rate of interest rate ranges from 14 – 30% and differs from bank to bank. In additions, the rate of inter¬est also changes from customer to customers within the same bank based on the customer’s credit history, transactions summary and deposits with the bank.
A quick comparison:
1. Interest Rate: While the personal loan interest rates are higher the gold loans aren’t that much. The reason is simple. Personal loans are unsecured and can have interest rates between 13% and 22%. Whereas, since gold loans are secured loans, the interest rates are 9.2% to 15%.
2. Processing Fee: on personal loan, it can be from 1% to 3% whereas for on gold loans it’s 0.5%. Some NBFCs may charge nothing as processing fee.
3. Tenure: On personal loan, it can be from 1% to 3% whereas for on gold loans it’s 0.5%. Some NBFCs may charge nothing as processing fee.
4. Credit Profile: A gold loan is a loan given against the gold assets. The person’s low credit profile might not affect his eligibility for the loan. Whereas, for a personal loan, having an impeccable score is a very important criteria.
5. Documentation & Disbursement: For gold loan it’s very minimal. Just the standard KYC and the gold. But in case of personal loan bank has to undergo a lot of checks before they sanction your loan. It could take some days before you had the money in your hand.
Unless you do not have enough gold for a gold loan or you need a larger amount of loan then you can go for personal loans, or else by all means gold loans save you more money.