It’s no secret – Indians love their yellow metal! In some areas of India, brides wear several kilos of gold as ornaments and other jewellery. While it’s a sign of immense wealth and prosperity, it highlights the dependency of Indians on gold-based investments.
They’re a reasonably traditional means of investing, but it also offers a consistent appreciation in value.
Since gold is a limited resource, the demand for this priceless metal is significantly high. Surveys reveal that about 80% of households own a portion of yellow metal in some form or other. But, gold serves as more than an investment when sudden financial obligations arise. And, no, we don’t mean as an asset that’s sold off!
During a financial crisis, people can approach banks or lenders for loans against their gold as collateral. It allows investors to hold onto their assets without panic-selling them and incurring heavy losses. You can use it to finance medical expenses, children’s education, private venture, down payments for big-ticket purchases, etc. This option is ideal for temporary or short-term financial impediments.
Today, many well-reputed banks and non-banking financial companies (NBFCs) offer gold loans at lucrative interest rates. They’re a hassle-free means of availing instant cash with minimal documents, and some banks disburse the loan in less than an hour!
Various forms of the yellow metal are acceptable as collateral for secure gold loans. It includes jewellery, gold coins, gold bars, etc.
Comparison: Gold Loan Vs. Personal Loans
As a secured loan, borrowers must pledge their gold assets as collateral. In exchange, they receive a percentage of the gold’s value as the loan amount. Gold loans have a loan-to-value (LTV) ratio of 75%. Though, this may differ among lenders. The lenders will return the gold collateral to the borrower once the loan amount has been repaid.
In the case of a non-performing asset (NPA), the bank or lender will auction the gold collateral to make up for the loss.
Unlike gold loans, personal loans are unsecured and sanctioned based on various criteria. While the borrower doesn’t have to provide any collateral, they will be subject to CIBIL score checks and credit history verifications. Moreover, this loan takes longer to approve since it has multi-step processes. However, it allows banks to verify the borrower’s details before disbursing the amount.
Such loans are recommended for borrowers with high credit scores, preferably over 750. Those with poor CIBIL scores may be subject to high-interest rates.
So, between gold and personal loans, choosing one best suits your financial condition is best. However, bear the following points in mind about gold loans.
● Comparatively low-interest rates
● Offers flexibility to pay interest and principal at the end of the loan tenure
● No processing fees or foreclosure charges
● Loan renewals and extension is free
● Requires minimal documentation
● No strict terms and conditions
How Gold Loans are a Viable Investment
The fluctuating global markets make the sudden sale of gold-based assets risky. Instead of reaping the benefits of appreciation, you might incur some heavy losses. While financial obligations may rarely budge to suit your requirements, it’s best to avoid selling your yellow metal investments to pay these expenses off. And that’s why gold loans are an excellent investment!
In India, you can freely invest in diverse forms of gold – Digital Gold, Gold ETFs, Gold Mutual Funds, and Sovereign Gold Bonds (SGBs). So, during a financial crisis, you can use them as collateral without losing them to panic sell-offs! It makes them a lucrative investment since they can fund your economic necessities without forcing the need to sell them.
However, that’s not all investors benefit from investing in gold loans. Check out the following advantages of applying for loans against your yellow metal assets.
1. “Pay Interest Only” Option
Certain unexpected situations like hospitalisation or job loss could render it difficult to continue paying back the loan amount. In such cases, banks and lenders offer borrowers this option that allows them only to pay the interest component. The remaining principal amount can be repaid at the tenor’s end or during the loan’s closure formalities.
2. Lower Interest Rates
Secure loans are charged lower interest rates than unsecured loans, like personal loans. These interest rates for gold loans could range anywhere between 13% to 14%. In contrast, personal loan interest could go up to 15% and more! And, if the borrower can provide additional collateral, it will reduce the interest rate further.
3. No Processing Fees
Most banks and NBFCs don’t charge borrowers processing fees. These charges are unnecessary since the gold is held as collateral by the bank or lender. Moreover, the processing is much quicker owing to the pledged gold for added assurance.
4. No Income Proof
These loans can be availed by employed, self-employed, and unemployed individuals, like homemakers and senior citizens. Gold loan lending banks don’t request income proof because it’s a specific type of loan that requires borrowers to pledge their gold assets. So, even if the loan is not repaid, the bank will sell off the gold to recover the amount.
5. No Credit History Verification
Since unemployed individuals can avail these loans, those with poor credit history can also apply for the loan. However, gold loan lenders are assured about repayment of the principal amount as they have access to the pledged asset. And so, they don’t consider credit history before sanctioning these loans.
So, what’s stopping you from investing in gold for future financial emergencies? It’s a safe and secure way of availing quick funds without losing a portion of your portfolio. Instead of selling off your yellow metal investments, head to Bajaj MARKETS and apply for a gold loan today!