How gold loans became popular?

Gold’s importance has grown over time because it is easy to use as a way to exchange money and because it is a reliable store of value because its price rarely goes down. Even though it’s not the most common way to get a loan through a bank, the gold loan industry has grown rapidly over the last two decades and has become a significant part of the organised financial sector. Unlike other ways to get money, gold loans have proven to be very useful in times of trouble.

How Do Gold Loans Operate?

The fundamentals of some of the best gold loan offers are straightforward. A gold loan requires the customer to provide the gold to a lender in the form of coins or jewelry. It is possible to borrow up to 75% of the value of the pledged gold products. An Indian citizen who possesses items containing gold is eligible to apply for a gold loan.

When you present the gold item to the lender, an assessor will look it over to make sure of its carat and purity. As soon as you agree to the loan balance and any associated fees, you may start the paperwork.

After accepting your loan, the lender will retain the gold and deposit the funds into your bank account. The loan balance plus the lender’s interest should be repaid during the repayment procedure.

A substantial loss or price decline for gold is often not very likely. Lenders are motivated to lend money because gold’s value is guaranteed to rise over time, unlike the other assets that can be used as security.

Reasons Why Gold Loans Are Growing in Popularity

The reasons for gold loans becoming popular are given below: 

Less Expensive than Personal Loans

People who need money quickly often take out personal loans. But because a personal loan is not secured and doesn’t need anything as collateral, the lender has to make up for the risk by charging a higher interest rate. When you get a gold loan, you’ll keep your gold as collateral. This makes it much less risky for the lender to give you a loan. So, the best gold loans are less expensive than personal loans.

Faster Processing

When you need money quickly, it might not always be a good idea to go through the trouble of taking out other loans. The best gold loans are known for being easy to get and quick to pay out. The majority of lenders only need some time to approve the loan if all of your paperwork is in order.

Minimum Eligibility Requirements 

Getting a loan against gold is easier than getting a personal loan or a loan against property because there aren’t as many rules about who can get one. Lenders turn down a lot of loan applications because the borrowers don’t make enough money or have a good enough credit score. But a gold loan doesn’t have these kinds of rules. This makes it an excellent option for people with bad credit, who are just starting out in their careers, or who are unemployed.

No penalty for Paying off the Loan Early or Foreclosing

Most other loans have penalties if you need to pay off the loan early or let it go to foreclosure. People pay off loans early or let them go to foreclosure to save money on the interest they will have to pay if they let the loan run its full term. This fine could significantly reduce your savings. But most lenders don’t charge these kinds of fees for gold loans. You can pay off the loan in full or in part at any time.

No Fees for Gold Security

It is risky to keep your gold at home, so the majority of people store their unused gold in deposit lockers. For storing your gold securely, the banks charge you a yearly fee. In the event that you borrow money on the gold, your lender will keep it safe without charging you any extra fees. Consider this a way to store your gold without having to pay a fee for it while also earning money against it.

Flexible Repayments

The best thing about gold loans is how flexible the payments are. You don’t have to pay monthly instalments, pay back the loan based on how much money you have during the term. You can choose to only pay interest each month and pay off the loan at the end of the term. You could also pay the whole amount at the end of the payment period.

Extended Repayment Tenure

The best gold loans have a longer time to pay back. The repayment tenure can be as long as 3–4 years. This allows you to plan your payments after you’ve taken care of the emergency. Still, paying back the loan as soon as possible is the best way to save money on interest.

No Limits on the End Use

When talking about whether or not a gold loan is a good idea in an emergency, the fact that it can be used for anything is its most significant selling point. This means that borrowers can use these funds for various financial needs. It could be for personal costs, medical emergencies, or work-related needs. 

Good Interest Rates

The interest rates on the best gold loans are low. Gold is reliable collateral for anyone. In India, interest rates on gold loans are usually between 12 and 14% per year, which makes them an affordable way to borrow money.

Conclusion

Due to the ease of obtaining short-term loans with attractive terms like low interest rates, flexibility of use, and quick disbursal, gold loans have emerged as the market segment with the fastest growth.

Since gold jewellery is traditionally purchased and given as gifts for weddings, Diwali, and Dhanteras, most people keep a supply of some gold jewellery on hand. This can be turned into money and used as collateral for a loan.

For more details related to the popularity of gold loans, you can visit the Piramal Finance website and explore their products and services.